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V)> DO 

OU 160840 >m 






M A D it A 8 


IN MADRAS 1927-28. 




2* I Preliminary . . . . . . . . . . . . . . . . . . 1 


* ] Progress up to 1915 J. 3 

5. General progress after 1915 . . . . . . Tt / > . . 6 

Credit societies. 

6. Agricultural credit societies .. .. .. .. . . . . tm 7 

7. Urban credit societies . . . . . . . . . . . . . . fm n 

8. Societies for the depressed, backward, and similar clashes . . .. .. 12 

Non-credit societies, 

9. Loan and sale societies .. .. .. .. .. .. .. mm ij. 

10. Store societies and trading unions .. r . , . .. .. t 14. 

11. Labour societies .. .. .. .. .. . . .. .. .. 15 

12. Building societies .. .. .. .. .. .. ,. ,. 15 

13. Irrigation and land reclamation societies ., .. . . ^ >t 15 
14-. Weavers' societies .. .. .. .. .. .. .. ,. ,. 17 

15. Agricultural demonstration and supply societies ., ,. .. 17 

16. Other non-credit societies .. .. .. .. .. ,. m> 13 

Financing organizationt, 

17. Central banks ,. .. ,. .. .. .. .. .. t% lg 

18. The Madras Central Urban Bank .. .. -% .. .. >t 21 

19. The Christian Central Bank , . . . 23 

20. Land mortgage banks .. .. .. .. .. .. tt -t 24 

Supervising organizations. 

21. Hupervising unions .. .. .. ,. .. ,, .. tt 25 

22. Federations .. .. .. ., .. .. .. .. tt 26 

23. The Provincial Co-operative Union .. .. .. .. 9t 27 

24. Government staff and Government and non-official expenditure, on the 29 


25. Audit and audit unions .. .. .. ,, .. .. %% ,. 32 

26. Reserve funds 34 

27. Arbitration and liquidation .. .. , % .. ,. .. t , 34 

28. Education and training ,, ,, , f ., ,, ,, . , 3</ 




29. Preliminary 37 

30. Division of agricultural loans into long and short term loans . , . 89 

Credit tooietiet. 

31. Agricultural credit societies .. .. .. .. t , .. t , 44 

32 . Urban credit societies . . . . . . . . . . . . , . , . 43 

33. Societies for the depressed, backward, and similar classes 61 

Non-credit societies. 

31. Agricultural demonstration and supply societies and connected matters . , 64 

36. Loan and sale societies .. .. .. .. . . .. .. . t 56 

36. .Wearers' societies 66 

37. Building societies . . . . . . . . . . . . . , . . . . 67 

38. Stores 68 

39. General , 69 

Financing organizations. 

40. Central banks 60 

41. The Madras Central Urban Bank . . . . 63 

42. Land mortgage banks . . . . .. .. .. .. . . . . 66 


43. De-officialization 69 

44. Supervision and inspection . . . , . . . . . . . 4 . 9 69 

46. Government staff .. . . . . .. . .. . . .. 73 

46. Audit and audit unions ., .. .. .. .. .. . . .. 75 

47. Reserve funds .. .. .. .. .. ., .. .. .. 80 

48. Fluid resource . . . . . . . . , . . . . . . . t . 81 

49. Deposits by local bodies, etc 89 

60. Arbitration, liquidation and execution .. ,. ., % . ., .. 91 

61. Education and training 94 

.62. The Registrar' s powers and connected matters .. .. .. .. 95 


63. Summary of proposals ,. .. .. .. , t .. ,. .. 99 

64. Final 112 

Minute of dissent by Messrs. To wnsend, Ellis, and Stooker .. .. .. 113 

the Hon'ble Mr. V. Ramadas Pantulu 116 

,, M.R.Ry. Rao Bahadur T. A. Ramalingam Chettiar . . 127 

Note by Mr. Townsend - 133 

Mr. Paul . . ..'.." 138 


Appendix I. General questionnaire . . . . <f . . t . , . , 141 

,, II. Questionnaire issued to central banks 146 

,, III. Resolution No. 20 of the Conference of Registrars held at 147 
Bombay in January 1926. 

IV. -List of witnesses examined ,, ., ,, .. 9 . 148 

IN MADEAS 1927-28. 


1. The Government of Madras in Gr.O. No. 1366, Press, 
Development, dated the 1st September 1927, announced their 
decision to appoint a committee to enquire into the present state of 
the co-operative movement in the Presidency : they stated that the 
decision was influenced by resolutions tabled in the Madras Legis- 
lative Council, by a demand voiced in the local press, and by a 
resolution passed by the Fourteenth Madras Provincial Co-operative 
Conference. The decision also accorded with a recommendation of 
the Eegistrar of Co-operative Societies. 

The Committee consisted of the following : 

(1) 0. A. H. Townsend, Esq., C.I.E., 1.0.8 President. 

(2) B. H. Ellis, Esq., 1.0.8 ' 

(3) E. P. Stocker, Esq., Agent, Imperial Bank of India, 


(4) The Hon'ble Mr. V. Bamadas Pantulu, B.A., B.L , 

Member, Council of State, and President, the 
Madras Central Urban Bank, Limited. 

(5) M.B.By. GK K.Devadhar Avargal, M.A., C.I.E., Presi- ^Members. 

dent, Provincial Co-operative Institute, Bombay. ' 

(6) M.B.By. Bao Bahadur T. A. Bamalinga Chettiyar 

Avargal, B.A., B.L., High Court Vakil, Coimba- 

(7) K. T. Paul, Esq., B.A., O.B.E., Greneral Secretary, 
Young Men's Christian Association 

GK H. Cooke, Esq., M.C., I.C.8 Secretary. 

The following were the terms of reference : 

(1) to examine the progress made in the co-operative 
movement in this Presidency since the Maclagan 
Committee's report j 

(2) to enquire into the present position and lines of develop- 

ment of the movement and to make recommendations ; 

(3) to examine the practice and organization of the financial 

system and to make recommendations ; 

(4) to make recommendations in regard to propaganda, super- 

vision and control of societies and finance ; and 

(5) to examine the position in regard to co-operative 

distribution, production and sale and to make 
recommendations . 

2. The President reached Madras on September 8th, his office 
having been opened a few days earlier. The other members of the 
Committee arrived at varying dates later in the month. A question- 
naire was issued on September 19th to a large number of officials, 
non-official gentlemen interested in the movement, and co-operative 
institutions throughout the Presidency, and it was after consideration 
of the replies received to it that the gentlemen and institutions asked 
to give oral evidence before the Committee were selected. To 
central banks a supplementary questionnaire on points relating to 
the details of their working was also sent. They will both be found in 
appendices I and II. At the end of September the Registrar of Co- 
operative Societies (referred to later as the Registrar) was examined. 
During the greater part of October and November the Committee 
was on tour throughout the Presidency, visiting more than half the 
districts in it. In each of these districts, and in Madras itself, co- 
operative institutions of all kinds, ranging from primary societies to 
the Madras Central Urban Bank (known as the M.C.U.B.), were 
visited by members of the Committee, who examined in detail the 
actual working of the organizations. To this examination, parti- 
cularly the working of primary agricultural credit societies, much 
importance was attached. And at convenient centres, and in Madras 
itself, oral evidence was taken of the gentlemen referred to above, 
the evidence of witnesses belonging to districts not visited by the 
Committee being taken in adjoining districts. The oral evidence of 
123 witnesses was taken and 129 co-operative organizations were 
inspected on the spot. At the beginning of December some members 
visited Mysore State to study the working of the Co-operative 
Department there. On their return the Committee devoted itself 
to the consideration of its conclusions, on which much previous informal 
discussion, both oral and by circulation of notes, had taken place. 

The Committee considered the desirability of printing the 
evidence both written and oral submitted to it, but, by a majority, 
decided against the proposal on financial grounds, 


3. Progress up to 1915. The Maclagan Committee submitted 
their report in 1915, and in our terms of reference we are instructed 
to examine the progress made in the co-operative movement since 
that date. But, to render this report complete, it is necessary to 
make brief reference to the gradual development of the movement 
before that year, the developments subsequent to it being dealt with 
in greater detail. 

4. As the Maclagan Committee say in paragraph 3 of their 
report, the Madras Government was the first to grasp the possibili- 
ties of a co-operative movement in India, Mr. (now Sir) Frederick 
Nicholson having been placed on special duty by that Government 
in 1892 to study the theory and practice of agricultural and other 
land banks in Europe, and to suggest means by which a similar 
movement might be popularised in India. In 1897 and 1899 
Mr. Nicholson issued exhaustive reports on the systems prevalent in 
Europe,*! which, though now to some extent out of date, still 
constitute invaluable sources of information regarding European 

The first purely co-operative society in the Presidency was 
registered on August 30th 1904, the first Eegistrar, the late Sir 
P. Eajagopala Achariyar, having assumed charge of his office a 
month earlier. Progress was at that time slow, more attention 
being rightly paid to quality than to quantity. The Eegistrar 
personally supervised and inspected every society and sanctioned all 
loans. He also personally trained his small staff. On June 30th 
1907 (the co-operative year ends on June 30th), the number of socie- 
ties had grown to 63 with 6,439 members : on June 30th 1912 we 
find 972 societies with 66,156 members : on June 30th 1915 the 
corresponding figures are 1,600 societies with 118,726 members. 
Of these 1,446 were agricultural credit societies : the remainder were 
nearly all urban credit societies. The working capital of these 
1,600 societies was Es. 142'10 lakhs. For the first few years after 
the birth of the movement Government helped to finance it ; but 
this soon ceased. To assist in financing co-operative societies the 
M.C.U.B. was registered in October 1905 as a feeder bank, whose 
function was to finance co-operative societies throughout the Presi- 
dency : indeed the bank could lend money only to such societies. 
For the first decade of its existence it consisted of only individual 
shareholders. In addition to the financial help given by the 
M.C.U.B. societies obtained a small amount of money from share 
capital and deposits. In 1909 the formation of district central banks 
was found necessary, and t^o such were constituted in that year. 

They were generally identical in principle and working with the 
M.C.U.B.: their object was to finance rural and urban societies : 
their shareholders were all individuals, and the activities of each 
were confined to one district. They were supposed also to c inspect ' 
co-operative societies, but their by-laws contained no provision for 
either inspection or supervision. Until recently indeed no distinc- 
tion has been drawn between these two terms, and to this much of 
the present difference of opinion on these important matters is due. 
To these banks th3 loans originally advanced by the M.C.U.B. to 
societies in their districts were transferred. 

A new variety of central bank known as a c banking union ' 
came into existence in 1912, in the Madura-Eamnad Central Bank, 
which had both individuals and societies as shareholders. It also 
had as its object not only the finance but also the supervision and 
control of affiliated societies. Three more similar banks were 
registered before 1915, and yet another which confined full member- 
ship to societies and admitted individual shareholders only under 
certain restrictions. 

The societies affiliated to the earlier banks had meanwhile been 
agitating for admission to them as shareholders, and by 1915 all 
banks save two had thrown open their membership to societies as 
well as individuals. 

The importance of these banks in financing co-operative institu- 
tions is shown by the fact that of the total working capital of 
agricultural societies, which amounted to Ks. 64-55 lakhs on June 
30th 1915, about Es. 50 lakhs had been provided by central banks. 

The troublesome question of supervision forced itself prominently 
into notice about 1910, as societies had become too numerous for the 
Eegistrar and his staff to supervise. It had also been found impos- 
sible for one central bank to supervise satisfactorily the numerous 
societies scattered over the large area of a district. As a result the 
first supervising union of societies was registered in 1910. Its 
membership was confined to co-operative societies within a radius 
of seven miles, and its object was the supervision of its affiliated 
societies : the then Eegistrar, in the concluding words of the letter 
with which he forwarded the proposal to register the union to Gov- 
ernment, said c an ultimate advantage of these unions will be that, 
when they are started close together, the State may withdraw from 
the work of supervision, confining itself to audit work '. Towards 
its expenses the M.C.U.B. agreed to set aside one-thirtieth of the 
total interest due on loans granted to the societies affiliated, and also 
expressed its strong disapproval of any proposal that the district 
bank should exercise supervision over primary societies. But it 
should be remembered that at that time the bank was entirely com- 
posed of individual shareholders. Its 'composition is now different, 

as is stated elsewhere : society shareholders have to a very large 
extent replaced individual shareholders, and the views of the bank 
on this question of supervision have, we are informed, changed. 
Two more unions followed in 1911. But, as shown above, the earlier 
banks were supposed though it was not laid down in their by-laws 
to c inspect ' societies, and those which were formed on the model 
of the Madura-Kamnad bank in 1912 and 1915 had among their 
definite objects the c supervision ' of affiliated societies. Both 
systems of supervision by banks and supervising unions developed 
side by side, and on June 30th 1915 there were, excluding the 
Madras Provincial Co-operative Union, 19 supervising unions, and 
1 central banks working in the Presidency. Six of the former had 
not actually started work ; some of the latter, in addition to the 
unions, were exercising supervision over societies. 

The Madras Presidency was peculiarly congenial to the birth of 
urban credit societies, in that for many years nidhis, or indigenous 
financing associations, had been in existence, and in many ways the 
earlier co-operative urban credit societies adopted the methods already 
in use in them. The first purely co-operative society formed to 
provide credit to dwellers in urban areas was the Conjeeveram Town 
Bank in the Chingleput district, which was formed in October 1904. 
Each succeeding year saw the birth of a few more of these societies, 
and on June 30th 1915 the number of non-agricultural credit 
societies was 103, of which 76 were on a basis of limited liability. 
These 103 societies had on that date a total membership of over 
22,000 with a working capital of nearly fifteen lakhs, of which more 
than 30 per cent had been provided by deposits from non-members 
and more than 25 per cent by deposits from members. 

The first non-credit society formed in the Madras Presidency was 
the Triplicane Co-operative Stores, registered in 1905 : it was soon 
followed by similar societies at Coimbatore and Madura. Their 
object was the provision of the more important necessities of life to 
their members. At the end of the year 1906-07 eight stores had 
been registered, but, with the exception of the three first mentioned, 
they were unsuccessful, and five definitely failed and had been 
wound up prior to 1915. On June 30th 1915 eleven stores societies 
were in existence, of which the Triplicane Society was the most 
prosperous. Those at Coimbatore and Madura had experienced 
considerable reverses in the previous years, but had regained a sound 
position on that date. A tailoring society was formed in 1907 to 
purchase raw material and provide work for its members, but failed 
after a brief existence of three years. More success attended a 
weavers' union formed at Conjeeveram in 1905, which purchased 
raw materials for its members and arranged for the sale of their 
manufactured products j it also introduced improved methods of 
weaving. During 1914-15 the gales through this union exceeded 


The eight building societies formed prior to 1915 achieved but 
little success, and the same remark applies to the three grain banks 
which had then been formed. 

Between 1912 and 1915 eight societies were formed which had 
as their main object the purchase of seed, manures and agricultural 
implements for their members, and under the guidance of the 
Agricultural Department these societies did useful work though on 
a limited scale. Other non-credit activities in the early stage of the 
movement were of but little importance. 

?- [Finally, mention must be made of the Provincial Co-operative 
TJiiion, which was registered in 1913-14 with the general object of 
assisting co-operative work by every possible means. At its inception 
both societies and individuals were admitted as members. The union 
took some time to make real progress : in his report for the year 
ending June 30th 1915 the Eegistrar wrote as follows : 

The Madras Provincial Union, which has 124 societies affiliated 
to it, did some work during the year : the Provincial Co-operative 
Conference of January 1915 was held under its auspices, and towards 
the close of the year it was entrusted by Government with the 
publication of the Madras Bulletin of Co-operation. 

So much to show the progress of the movement up to 1915. In 
the following paragraphs we give more fully the history of the 
movement after that year. The more important types of co-operative 
organizations are dealt with separately, and then the more important 
questions with which they are all concerned. 

5. General progress after 1915. The figures used by the 
Maclagan Committee in their report are, so far as we can ascertain, 
nearly always those for 1913-14:. The following statement shows 
how great, so far at any rate as figures go, has been the progress 
made in all phases of the co-operative movement during the past 
thirteen years in the Madras Presidency : 

Total working 

Actual working 

Capital of all 

capital in the 


of all 



banks and 
societies as 
shown in 




of one society 

returns . 

in another. 

















































Of the 13,357 societies existing on June 30th 1927 no less than 
11,000 with 583,315 members were agricultural primary credit 
societies. The remainder consisted^of the following : 

Central banks . . . , . . . , . . . . 33 

Supervising unions . . . , . . . . . . 388 

Agricultural societies 

Societies for purchase and purchase and sale . . 116 

Societies for production and sale . . . . 16 

Societies for leasing lands 
Irrigation societies 
Land reclamation societies 
Cattle insurance societies 





Non-agricultural societies 

Credit societies .. .. .. .. .. 1,115 

Societies for purchase and purchase and sale . . 185 

Societies for production and production and sale . . 21 

House-building societies . . . . . . . . no 

Labour contract societies . . . . . . . . 53 

Miscellaneous societies . . . , . . . . t t 38 

It is interesting to note how far the co-operative movement has 
reached the ''people as a whole, giving similar figures for the other 
provinces of India. The figures worked on are those of 1925-26 
the latest year for which figures for all provinces are available! 
The population figures examined are those of the 1921 census. 

On the assumption that a member of a co-operative society 
represents a family of five people, the following is the percentage 
of the population touched by the movement in each of the major 
provinces of India : 

Madras . . . . . . . . . . . . . . g-QO 

Bombay ll'QO 

Bengal . . 4.95 

Bihar and Orissa 320 

United Provinces . . . . . . . . . . j85 

Punjab 10-40 

Burma 5-55 

Central Provinces . . . , . . . , . 5-45 

6. Agricultural primary credit societies. Agricultural primary 
credit societies are by far the most important of all co-operative 
organizations in Madras, and indeed throughout India : they number 
now, as has been already said, 11,000 out of a total of 13,357 co- 
operative organizations of all kinds. Their numbers have progressed 
steadily every year since 1915, when 1,438 societies of this nature 
were in existence. Until 1918 some 300 additional societies came 
into existence every year. In 1918-19 the number of societies in 
existence increased by more than 800, and every year since then 
has seen the net addition of between 750 and 1,100 societies : in the 


year ending on June 30th 1927 no less than 1,230 societies were 
added. From these figures the number of bad societies liquidated 
every year has been excluded. 

The 11,000 societies in existence on June 30th 1927 had a work- 
ing capital of Ks. 489*52 lakhs, of which Ks. 375*56 lakhs had been 
lent by central banks. The balance was made up almost altogether 
of share capital, reserve funds, and deposits, Ks. 7*15 lakhs having 
been deposited with them by members and Es. 12*68 lakhs by non- 
members. The comparatively small amount of these deposits is 

The agricultural primary credit society is the foundation stone 
on which the whole co-operative edifice is built : if these societies are 
generally in a good condition, confidence may be felt that the struc- 
ture is generally sound. But if they are generally unsound, nothing 
can prevent the ultimate collapse of the edifice, however good parts 
of the superstructure may be. A detailed account of the village 
society, as the agricultural primary credit society is usually called, 
is found in Chapter II of Hemingway's invaluable u Madras Co- 
operative Manual." 

These societies are practically all formed on a basis of contribu- 
tory unlimited liability, and are composed of a number of agricul- 
turists who unite to obtain credit on their joint security which is of 
course this is a co-operative common-place greater than the 
separate security of each individual. The membership of a society 
is generally confined to the residents of one village, or, at the most, 
of one village and its adjoinmg hamlets : this is to ensure the local 
knowledge that is so essential if a co-operative society is to be 
successful. TheMaclagan Committee found the average member- 
ship of a village society in Madras to be 62 : the present figure is 53. 
The corresponding figures for other major provinces are 

Bengal . . 25 

Bombay 66 

United Provinces f , . . . , . . . . 24 

Punjab 27 

Central Provinces and Berar . . . . . . 15 

It will be seen that the membership in Madras is larger than in 
most other provinces. 

The management is in the hands of a c panchayat ', or executive 
committee, which usually consists of five members to ba elected 
annually by the general body of all members. 

The objects of these societies, as shown in the model by-laws, 
are as follows : 

(1) to borrow funds from members or others to be utilized 
for loans to members for useful purposes j 

(2) to act as the agent for the joint purchase of the agricul- 

tural, domestic and other requirements of its members, 
and for the joint sale of their produce ; 

(3) to purchase and own implements, machinery or animals 

for hire to its members ; 

(4) to disseminate a knowledge of the latest improvements in 

agriculture, handicrafts, and weaving, and encourage 
its members to adopt them ; and 

(5) generally to encourage thrift, self-help, and co-operation 

among the members. 

The first object has certainly- been attained : in borrowing 
money no small success has been achieved by village societies, as is 
shown by the fact that on June 30th 1927 the total amount of loans 
outstanding against members of agricultural primary societies was 
Ks. 4,31,67,854: the corresponding figure on June 30th 1915 was 
Ks. 57,73,362. Of this very large amount outstanding on June 
30th 1927, 49'33 percent had been advanced on the mortgage of 
immovable property : 48' 44 per cent on the joint personal security 
of one or more members : and the balance either on the security of 
deposits (*19 per cent), the pledge of movable property (1*62 per 
cent) or the simple bond of the borrower (-42 per cent). Unfortu- 
nately however many members of primary societies in the Presidency 
have not yet realized ^ that borrowing involves repaying. This is 
shown by the following statement of overdues that is amounts 
outstanding, though due on June 30th 1927, and on the same date 
of each of the five preceding years. With each figure is given, for 
facility of comparison, the percentage each bears to the total demand 
for that year: 

June 30th, 











During this period the percentage of interest that remaiued 
uncollected also increased, and at the end of 1926-27 46*18 per cent 
of the demand under that head was overdue. To this important 
question we return again later. 

The extent to which agricultural credit societies achieved the 
second object laid do.wn in .their by-laws is shown by the fact that 
in the year 1926-27 these societies bought, on behalf of their 
members, agricultural and other requirements, (?hiefly ploughs, 
manure, cattle-food, and domestic necessities, to the value of Ks. 1'58 
lakhs and sold, on behalf of their members, produce, chiefly agricul- 
tural, to the value of Ks. 1-36 lakhs. These activities were however 


confined to only a few of the 11,000 primary societies, the great 
majority of which did nothing in these matters. But a number of 
non-credit societies have been formed of recent years, for the joint 
purchase, sale, and purchase and sale of the requirements and produce 
of their members. With them we deal later. 

In but very few cases have village societies undertaken the 
purchase of implements, machinery or animals for hire to their 
members, and the extent to which credit societies have attempted to 
improve the methods of agriculture, handicrafts and weaving prac- 
tised by their members is negligible: these functions in some cases 
are also now being performed by separate societies formed on the non- 
credit basis. 

In the fifth of their objects, the encouragement of thrift, self- 
help, and co-operation, with a few notable exceptions but little 
success has been obtained. 

Village societies borrow from central banks at about 7^ per cent, 
and lend to their members at 9| per cent, though in a few societies, 
especially on the Malabcar coast, a lending rate of lOJ-f- per cent 
is adopted. The margin tlius available with societies for working 
expenses is smaller than in any other province. On overdue loans a 
penal rate of interest of 1.2 J per cent is generally charged, but in a 
few districts this figure has been raised to 18| per cent. 

The by-laws of all societies lay down that the maximum 
borrowing power of the society may not exceed a certain figure, 
which is, as a rule, not more than one-eighth of the total assets in 
land and cattle of all its members : for this purpose a property 
statement, showing details of the property held by each member, is 
maintained, which should be carefully revised every year. "Within 
each society the maximum borrowing power of each individual 
(which is the same for all members of a society) is also carefully 

During the year ending June 30th 1927 these societies advanced 
Bs. 236'58 lakhs to their members for the following purposes in 
percentages of the total ; 


For paying off prior debts . . . . . . . , 37*73 

For food and necessaries of life . . . . . . 7'54 

For trade 8'/>8 

For house-building .. .. .. .. .. 4' 14 

For cultivation 1670 

For purchase of lands . . . . . . . . . , 4*50 

For improvement of lands . . . , . . . . 5*81 

For marriages . . . . . . . . . . . "96 

. For other ceremonies . . . . . . . . . . '1*5 

The balance was advanced for various miscellaneous purposes. 


Village societies are permitted to pay dividends at a rate not 
exceeding 6J per cent. Some societies pay a dividend, but many do 
not: this is partly due to the fact that societies are not allowed to 
include in their divisible profits interest which is overdue. It is 
however laid down in their by-laws that repayments made by 
members shall be credited, firstly towards miscellaneous debts due to 
the society, secondly towards interest, and finally towards principal. 

Village societies are now allowed to advance monies to a member 
in excess of his ordinary borrowing power on the security either of 
standing crops, up to 40 per cent, or of harvested crops, up to 75 per 
cent, of their value. In the year ending June 30th 1927 the total 
amount of such loons was Rs. 6*62 lakhs : in each of the two previous 
years approximately Rs. 2| lakhs wore advanced on this account. 

7. Urban credit societies. -In urban areas credit societies have 
made satisfactory progress since 1915, and the 103 societies of this 
nature which were in existence in that year had on June 30th 1927 
grown to 1,115, of which 225 carried unlimited liability : the mem- 
bers of the latter generally belong either to Hie same caste or the 
same profession. The maximum dividend these societies can pay is 
6| per cent : most societies have regularly paid this. The remain- 
ing societies, to which persons of all castes arid professions belong, 
carry limited liability, and can pay dividends up to 9 percent: many 
societies pay this dividend regularly. The rate on which these 
societies borrow money varies from 3 to 7 per cent : the rate on which 
they lend from 6^ to 9| per cent. 

Among these 1,115 societies we find 194 societies for Govern- 
ment servants, 99 for municipal *servants and 9 for factory servants. 
The total membership of urban credit societies is 184,730, with a 
paid-up share capital of Rs. 52*47 lakhs, and a working capital of 
nearly 2 crores. Deposits from non-members amount to Rs. 57*29 
lakhs and from members to Rs. 46*22 lakhs. The large amount 
deposited by non-members with these societies is noticeable. 

Only 13*49 per cent of the working capital of these societies is 
composed of loans from central banks. In 1924-25, and 192-5-26 
the corresponding figures were 16*84 per cent, and 14*32 per cent 
respectively. The proportion of their total working capital which 
agricultural primary societies obtain from central banks is very 
much higher, being 76 '77. 

The percentage of balance to demand which was overdue on June 
30th 1 927 was 

Principal Interest. 


17-55 23*83 

The corresponding figures for agricultural credit societies have 
been already given, but they are reproduced here for facility of 
reference. They are as follows : 

Principal . Interest. 


45*65 46*18 

8. Societies for the depressed, backward, and similar classes. 
Special societies for depressed classes were found necessary owing to 
the peculiar conditions in which these classes live. These people 
reside in separate villages or hamlets, and are still debarred from 
social intercourse with their caste neighbours. These societies were 
at first organized by the Young Men's Christian Association, 
missionaries, and inspectors of the Co-operative Department : on 
June 30th 1915 six societies, exclusively for Panchamas (members 
of the depressed classes), were in existence: 5,347 of these people 
were then members of co-operative societies of all kinds. The 
corresponding figure now is 87,400. 

The first serious official attempt to improve the lot of these poor 
people was made in 1918, when a Deputy Collector was placed on 
special duty in Tan j ore to purchase house-sites for the Panchamas, 
for whom such provision was for various reasons found desirable. 
This officer organized co-operative societies to undertake the 
responsibility for loans advanced by Government of the money 
required for purchase of the sites. Prom this beginning the Labour 
Department was evolved in 1920. It started its operations in 
Tanjore and Godavari, and is now working in thirteen districts : from 
its inception it has attached du& inlportance to the development of 
the co-operative movement among the depressed classes. Societies 
were organized not merely for credit work, but for the purchase of 
house-sites, the leasing of land, more particularly of lankas (islands, 
more or less permanent, appearing in the beds of rivers) in the delta 
districts, and the taking of land on assignment from Government. 
The purchase of house-sites is financed directly by Government, the 
other activities by the Christian Central Co-operative Bank, and in a 
very few cases by district central banks. Por supervision, which in 
the case of these societies must be specially intensive, the Labour 
Commissioner was at first allowed one inspector for every 25 societies, 
but the scale was reduced in 1925 to one for every 40 societies in 
districts where the total number of societies exceeded 100 : until 
that figure was reached the existing scale was allowed to continue. 
These inspectors are experienced men lent by the Co-operative 
Department. In seven districts they not only supervise but also 
audit the societies in their charge. In the remaining six districts 
audit is conducted by the Co-operative Department. The Labour 

Commissioner gave the Christian Central Bank a personal guarantee 
of intensive supervision as regards the societies it finances, and 
it was in consideration of this' guarantee that the bank agreed to 
do so. 

The results achieved in the earlier years were surprising. In 
Tanjore up to March 31st 1924 Es. 3*61 lakhs had been advanced 
for purchase of house-sites, Es. 15,279 had been repaid hi advance 
of the due date, and only Es, 197 was overdue. In other districts 
the results were equally good. There has been some falling off in 
these respects in more recent years, partly owing to bad seasons, but 
these societies still compare favourably with ordinary primary 
societies. At the close of 1926-27, there were in existence 1,291 
societies in charge of the Labour Department with 56,579 members, 
paid-up share capital of Es. 3*11 lakhs, and total working capital of 
Es. 8*58 lakhs, of which deposits from members amounted to 
Es. 12,312. In addition there were in existence 796 societies for 
these classes in charge, as ordinary societies, of the co-operative 
department ; they had 27,690 members, paid-up" share capital of 
Es. 1*88 lakhs and total working capital of Us. 9' 17 lakhs, of which 
members' deposits formed Es. 11,000. On June 30th 1927 258 of 
these societies for depressed classes held over 30,000 acres of land, 
either on lease or assignment, principally in the Guntur', and East 
Godavari districts. 

Fishermen form another special class among whom there has 
been some co-operative development, chiefly through the activities of 
the Fisheries Department. There are now in existence 118 societies 
for this class, of which 22 are in charge of the Labour ; Department. 
They have in all about 4,000 members and (paid-up share capital of 
approximately half a lakh of rupees. 

The most important development of co-operation among criminal 
tribes has taken place in Madura and Tanjore, where Government 
have organized a special staff for the reclamation of the Kallars. 
An attempt to organize co-operative societies for tin's caste had been 
made previously in the Madura district. Large sums were advanced 
out of Government funds to societies formed exclusively of Kallars 
but 110 proper organisation was established for their supervision? 
Consequently within a very short time almost the whole amount 
became overdue and was considered irrecoverable. The Kallar 
Eeclamation Department was organized in 1922. It took over these 
moribund societies with their debts and, by dint of careful and con- 
stant supervision, was able to ensure, not only the prompt repayment 
of fresh loans granted to the societies, but even the recovery of a very 
large proportion of the old debts. There are now 211 of these 
societies in existence in Madura and 73 in Tanjore, with 23 467 
members, and outstandings to Government of Es, 4*80 lakhs, ' 


Co-operative societies are also attached to the Oftninal Tribes 
Settlements which are established in certain other districts. That at 
Sitanagaram in Guntur district, which takes a lease of a lanka from 
Government and borrows from Government for the purchase of 
plough-bullocks and for other expenses of cultivation, deserves special 
mention in this connexion. 

All these societies were on June 30th 1927 indebted to Gov- 
ernment to a total amount of approximately Es. 7^ lakhs on account 
of advances made to them. 

9. Loan and sale societies. To loan and sale societies we attach 
greater importance than their mere numbers warrant. As has just 
been stated some ordinary agricultural credit societies advance, .as one 
of their secondary objects, money on the security of harvested 
produce. Loan and sale societies are however formed with the 
primary object of advancing money on such security, 

The first of these societies appeared in 1924-25, and 38 were in 
existence on June 30th 1927. They are of limited liability, and 
contain both individual and society share-holders. Loans are granted 
to members only on the security of agricultural produce pledged to 
the society and placed in its custody : in no case are advances made 
of more than 60 per cent of the value of the produce pledged, 
which is stored in godowns either belonging to, or rented by, the 
society. Government have agreed to advance loans on certain condi- 
tions to these societies for- the construction of godowns, but only 
Es. 5,800 had been advanced on this account up to June 30th 1927. 
During the last two years, the following amounts were advanced by 
these societies to their members : 



1925-26 2-18 

1926-27 271 

10. Store societies and trading unions. The abnormal increase in 
prices in the period immediately following the war stimulated the 
formation of a considerable number of store societies : the eleven in 
existence on June 30th 1915 had grown to 103 by 1921. But the 
fall in prices in subsequent years reduced the margin of profit, and 
this factor, coupled with bad management in many cases, heavy 
establishment charges, and disloyalty on the part of members brought 
about the failure of many. By 1923 the number had fallen to 85, 
and during the next two years no new stores society was registered. 
The number has, however, increased during recent years : at the 
close of 1926-27 there were in existence 143 societies classed as 
stores. Only 86 however of these are stores properly so called. 


Practically all are situated in urban areas. The remainder are 
societies for providing school and college stationery (26 in number), 
trading unions, and a few societies dealing with cottage industries. 

The total working capital in 1926-27 was Es. 5*7 J lakhs: 
purchases, including stock on hand, amounted to Es, 24*72 lakhs, 
and sales to *Rs. 21*97 lakhs, and such as did well made a total profit 
of Es. 43,000. Others unfortunately made a total loss of Rs. 20,000 
during the year. Much of the success of some stores has been due 
to the fact that Government have allowed corporate bodies such as 
u devastanams " and colleges to become members : these bodies make 
very large purchases. 

The most successful of these societies is the Triplicane Stores 
which operates through its 21 branches in Madras City, and whose 
fame extends throughout India. Its sales during 1926-27 were in 
value Es. 11^ lakhs, and it made a profit during the year of 
Es. 17,300. 

11. Labour societies. Of labour societies, which are formed with 
the object of taking labour contracts direct, only one was in exist- 
ence in 1915 the Madras Salt Loaders Society. This society, which 
was organized in 1913, takes contracts from the Salt Department for 
loading salt at the Madras depot into railway wagons and barges. 
After 1919, and particularly in the last three years, a number of 
these societies has been formed, and at the close of 1926-27 there 
were 57 in existence with 2,249 members. Members include road 
makers, wood cutters, cartmen and field labourers. The societies 
have, during the last five years, executed works valued at over 
Es. 10 lakhs, and have secured for their members large profits which 
would otherwise have gone into the pockets of contractors : but they 
are handicapped when they have to compete for contracts with profes- 
sional contractors. Government have drawn the attention of all 
local bodies to their existence, and have suggested that they should 
be employed to execute works whenever possible. 

12. Building societies. In 1914-15 there were eight building 
societies in the Presidency : by 1922-23 the number had increased 
to eighteen. The great difficulty of finding long-term money at a 
reasonable rate of interest retarded their development : the rates of 
interest charged had to be sufficiently low, and the period sufficiently 
long, to allow of repayment by instalments which did not exceed the 
repaying capacity of the members, and the societies, being unable to 
obtain money in the open market on suitable terms, had only at their 
disposal such limited amounts as they could obtain in the form of 
share capital and deposits. 

The first successful method of raising money otherwise was 
devised by the Coimbatore society in 1918-19. It borrowed half 
& lakh of rupees from the local municipality at 6| per cent and lent 


the money to its members at 7| per cent. The problem had mean- 
while been engaging the attention of Government, and in 1922-23 
the conclusion was arrived at that financial help from Government 
to these societies in the shape of loans was not only essential but also 
proper, as representing a legitimate contribution by Government 
towards the solution of the housing problem and the relief of conges- 
tion in towns, The effects of the decision were immediate, and 
a large number of these societies, which are confined to urban areas, 
has been registered each year since then. Their number now 
amounts to 109, with 3,883 members, and with a total paid-up share 
capital of Es, 6*80 lakhs. The total amount of Government loans 
outstanding with these societies on June 30th 1927 was Rs. 13 
lakhs. The negligible amount of Rs. 8,000 was outstanding overdue. 
During 192627 681 houses were constructed by these societies, and 
Es. 5^ lakhs were advanced by them to their members. Government 
lend monies to these societies at 6| per cent, and the same money is 
then again lent by the societies to members at 7J per. cent. Loans 
are ordinarily given for twenty years or, with the sanction of the 
Registrar, for thirty years : they are only sanctioned for the purchase 
of sites and the construction of new houses. Dividends are paid by 
the societies on share capital, but they are adjusted to credit of the 
member's loan account, and are not disbursed in cash. 

13. Irrigation and land reclamation societies.- Societies for dealing 
with irrigation were first organized in 1923-24, when four such 
were formed in the Tan j ore district. The number has now risen to 
twelve, distributed over five districts. They are formed either for 
the clearance of silt on a co-operative basis from irrigation channels 
common to a village or group of villages, or for the irrigation of the 
lands of members by a common pumping installation. No societies 
with the latter object are yet working. On the average of the last 
three years the value of work done by societies with the former 
object is Rs. 1,900 annually. 

Land reclamation societies owe their origin to the heavy floods 
which came down the Cauvery river in July 1924, when large areas 
of valuable wet lands in the Tan j ore and Trichinopoly districts were 
covered with heavy deposits of sand. The problems involved in the 
removal of the sand were considered suitable for solution by co- 
operative methods, and societies for the purpose were formed without 
delay. Nine such are now in existence. Government provided the 
funds in the form of takkavi advances to the societies at concession 
rates, and also supplied nearly six miles of tram lines and over 400 
trucks for removing the sand. Up to the end of 1926-27, 614 acres 
had been cleared, out of a total of 2,482 acres covered by the opera- 
tions of the societies. The total loans from Government outstanding 
with the societies on June 30th 1927 was one and a quarter lakhs of 


14. Weavers' societies. The existence at Conjeeverarn of the 
solitary society for the benefit of weavers, which had been organized 
in 1905, was an incentive to the formation of more societies for this 
indigent and backward class, and on June 30th 1927 the number 
of weavers' societies in existence was 52. Their particular object is 
the improvement of the handloorn industry ; their general object, 
the improvement of the economic condition of the weavers by any 
means possible. For the latter purpose loans can be given to 
members for any really useful or necessary object : but the former 
object is that on which they concentrate. 

During 1926-27 these fifty-two societies, of which the members 
are all weavers, dealt in material to the value of about one lakh and 
a half : they purchased raw material (yarn), gave it to their members 
to weave, and then sold the manufactured cloth. In 1926-27 such 
of these societies as did well made a profit of Bs. 3,442, against a 
loss made by other societies of the same class of Bs. 7,893. The 
corresponding figures for the previous year are: profit Bs. 3,119: 
loss Bs. 6,667. 

To improve the working of these societies aii experienced 
inspector of the department was recently given training in improved 
methods of weaving for one year by the Department of Industries. 
Having completed his training, lie was attached to the special officer 
who is making a survey of the cottage industries of the Presidency. 

15. Agricultural demonstration and supply societies. Thirteen 
agricultural demonstration societies exist : ten however of these 
are in three districts. Most of them take small amounts of land on 
lease and cultivate it, partly by ordinary methods, and partly by the 
improved methods recommended by the Agricultural Department. 
The results have been in favour of the latter. A few of these socie- 
ties also make a small profit from the sale of artificial manure, or the 
hiring of improved ploughs to their members. These articles are 
also dealt in by twenty societies formed specially for the purpose, 
and by twenty-six agricultural store societies. During 1926-27 
these societies sold to their members about a lakh and a half worth 
of goods. There also now exist four combined agricultural and 
industrial societies for hulling paddy, crushing sugarcane, manu- 
facturing jaggery and the like, one dairy society, and 11 milk 
supply societies. The total working capital of all these societies 
amounts to Bs. 1*70 lakhs. In 1926-27 one of these societies lost 
over Bs. 3,000, having lost nearly Bs. 14,000 in previous years : 
the remainder worked at a profit, which was small in all cases with 
the exception of one society, which mado over Bs. 2,000 profit in 
the year. 



16. Other non-credit societies. About two hundred more co- 
operative societies also exist, of widely varying activities, which have 
not yet been mentioned. Fifty-eight societies on a thrift basis, 
mainly consisting of Adi-Andhras, have accumulated share capital to 
the extent of Es. 24,344, and 115 societies for field labourers and 
fishermen, on the same basis, have a paid-up share capital of 
Bs. 31,446, and more than Es. 3,000 as deposits. Among other 
forms of co-operative activity we find printing societies (6), fishing 
lease societies (5) ? cattle insurance societies (4), benefit fund societies 
(2), and sheep breeding and penning societies (2). 

17. Central banks. Mention has already been made of central 
banks, and how they came into being. 

On June 30th' 1915 there were in existence in Madras, in 
addition to the M.C.TJ.B., which is sui generis and to which 
reference is made later (from the figures given in this paragraph 
those relating to that bank are excluded), nine central banks, 
seven with both individual and society shareholders, and two, 
those of Salem and Trichinopoly, with only individual shareholders. 
These two however also soon permitted societies to hold shares in 
them, and at the present day the paid-up share capital held by 
society shareholders in central banks exceeds that hold by individual 
shareholders in all save six cases. But in no case do individual 
shareholders outnumber society shareholders. The general ten- 
dency is for the former to decrease in numbars, as additional 
shares are taken up by new societies. 

How central banks came to supervise primary societies in some 
degree has already been related. After 1915 other .supervising 
organizations (unions and federations), of which accounts are given 
later, came into existence. But some banks, at any rate, maintain 
that the supervision of primary societies is among their functions. 

The following statement shows the growth of central banks in 
recent years : 

*S.S Q} 

Deposits and 


nj CD <W 


3 & M 

Share capital. 


fund after 

Total working 

Book profit. 

































































As a rule there is one 'central bank for each district, but in East 
Godavari there are four, while Tanjore, Ganjam and Kistna districts 
each has two. The operations of the Madura-Eamnad Central Bank 
extend to Madura and part of Eamnad district, the remainder of 
Eamnad having a separate bank, while the districts of Coimbatore 
and the Nilgiris are served by one bank. Of the amount of roughly 
4^ crores shown as u deposits and other borrowings including over- 
drafts " for the year 1926-27 

35*4:6 per cent represented deposits from individuals, whether 
members or non-members of any co-operative organization. Separate 
figures for each class are unfortunately not available. 

12*61 per cent represented deposits from co-operative societies. 

32*8 per cent represented deposits by local bodies and Govern- 
ment departments. This important feature in the finance of these 
institutions appeared first in 1919-20, when Government passed an 
order permitting local bodies to deposit in central banks approved 
by the Eegistrar, their surplus funds and deposits lodged with them 
by contractors and employees. To these wore also added railway- 
cess and deposits lodged with the Forest, Abkari, Jail and other 
Government departments. The total amount of these deposits has 
increased rapidly from 3 lakhs in 1919-20 to 164 lakhs in 1926-27. 

1*76 per cent represented cash credit drawn on the Imperial 

81 per cent represented cash credit drawn on the M.C.U.B. 
16*56 per cent represented loans from the M.C.U.B. 

The position however in this matter is not the same in all banks. 
A few of them are self-supporting in that they take no loans from the 
M.C.U.B., and a few others are almost in the same position. 

Mention is necessary of the cash credit drawn on the Imperial 
Bank, That bank has ever been most considerate in its attitude 
towards the co-operative movement, and allows overdrafts on it by 
co-operative banks including the M.C.U.B. and the Christian Central 
Bank, on the Eegistrar's recommendation in each case : these over- 
drafts at present amount to over Es. 65 lakhs. Various conditions 
are attached to these advances. On September 30th 1927 nearly 
Es, 6 lakhs were outstanding against central banks other than 
the M.C.U.B. on this account. 

The maximum dividend allowed to shareholders in central banks 
is 9 per cent. Most banks have paid this regularly. The by-laws 
of a few central banks still contain pro vision for payment of dividends 
to individual shareholders in preference to society shareholders ; 
but in practice distinction has been made in only a few exceptional 
cases, The rates of interest paid by central banks on these deposits, 
borrowings, etc,, vary in accordance either with Government Orders, 

the decisions of the Bankers' conferences which are held periodi- 
cally, or their own financial condition. Those payable on deposits 
of 4 all kinds range from 2 to 6 per cent according to their nature, 
amount, and period : the lower rates apply only to current deposits. 
On fixed deposits by local boards and municipalities, other than 
provident funds and security deposits, the normal rate payable is now 
4 per cent. 

The present rate of interest payable on cash credit secured by 
societies' promissory notes actually drawn by central banks on the 
Imperial Bank is 6~ per cent : when the cash credit is secured 
by Government promissory notes, the bank's minimum rate is 
charged. Central banks pay 6 per cent to the M.C.U.B. on loans : 
on cash credits the same rate is charged on the amount actually 
drawn or on 20 per cent of the sanctioned amount, whichever is 

As the figures already given show, the funds available with 
central banks have rapidly increased of late years. They are used in 
making loans to primary societies of all kinds, and on them 7, 8 
or 8| per cent (in a few cases) is now charged. These rates do not 
apply to the Christian Central Bank, which is dealt with later. 

Central banks also give loans both to members and non-members 
on the security of deposits made by them. Such loans may not 
exceed 90 per cent of the amount of such deposits. On them between 
7i and 8i per cent interest is charged. 

Of the amount outstanding with primary societies of all kinds 
on June 30th 1927 

27*4:7 per cent had been advanced for one year. 

17*75 per cent had been advanced for two years. 

38*51 per cent had been advanced for more than two years 

but less than five years. 

16*27 per cent had been advanced for periods exceeding five 

And on that date and this is an extremely serious feature 
20*18 per cent of amounts which should have been repaid to central 
banks by their borrowers (primary societies) were " overdue on 
account of principal, and 5*06 per cent on account of interest; that 
is, these monies had not been paid on due date and no extensions had 
been given. The corresponding figures for each of the five previous 
years are as follows : 

Principal. Interest. 

On June 30th 1922 . . 1074 2*8 


12-68 8-44 

16-98 5-37 

13-82 3-04 

16-76 3-53 

No central bank however has made default in repayment on due 
date of any loans or deposits, either from theM.O.U.B. or individuals. 

In paragraph 138 of their report the Maclagan Committee 
recommended that in the interests of depositors the total liabilities 
of central banks should not, in ordinary circumstances, exceed eight 
times their tc owned capital ", that is, their paid-up share capital 
plus reserve fund. Government in September 1926 prescribed that 
in no case should the liabilities of central banks including the Christ- 
ian Central Bank exceed ten times their owned capital (paid-up 
share capital plus reserve) : till then the proportion was eight times. 
Central banks are also required to maintain in the form of c; fluid 
resources " 50 per cent of current deposits, 50 per cent of fixed 
deposits falling due within the next thirty days, 25 per cent of savings 
deposits, and 50 per cent of the amount of cash credits allowed to 
other societies, as cover for deposits in them. 

Government have laid down that fluid resources may consist of 
(1) cash on hand, (2) undrawn cash credit with the Imperial Bank 
of India, and (3) 80 per cent of the current market value of Govern- 
ment promissory notes. The Maclagan Committee were in agree- 
ment with the principle of including undrawn cash credits with the 
Imperial Bank as a legitimate form of fluid resource (paragraphs 
13b 135). Each bank is required to submit to the liegistrar a 
quarterly financial statement showing in detail that the rules are 
observed. "We have seen some of these statements. Banks do, on 
occasions, permit their liabilities temporarily to exceed the prescribed 
standard, but the position is generally regularized with little delay. 

18 The Madras Central Urban Bank. In June 1915 the 
M.C.U.B., which was composed at that, lime only of individual share- 
holders, was financing co-operative societies of all kinds throughout 
the Presidency in districts in which central banks did not exist: 
in the districts in which central banks had come into existence it 
was financing them, and not primary societies. In April 19] 7, in 
accordance with fche recommendations of the Maclagan Committee, 
-it was converted into an apex bank for the whole Presidency, and 
floated additional ordinary shares to the value of Ks 4 lakhs, which 
were ear-marked for co-operative organizations including primary 
societies. A further change was made in 1919, by which primary 
societies ceased to be admitted as shareholders : those which had 
already acquired such shares transferred them to the central banks 
to which they were affiliated : 29 primary societies however still 
hold, as exceptional cases, shares ia the M.C.U.B., hut are not now 
allowed to borrow from it, Other steps were also taken to increase 
the importance of central bank shareholders as compared with indivi- 
dual shareholders. Details of the number and value of the shares 

at present held in the bank, by individuals, central banks, and 
primary societies are given in chapter III. All the shares held by 
individual shareholders are preference shares: those held by banks 
and primary societies are ordinary shares : all shares of either 
description are of Es. 100 each. Preference shares carry a dividend 
of 9 per cent. On ordinary shares tho maximum dividend payable 
is also 9 per cent : and dividend at this rate has been regularly paid, 

The bank confines its lending operations almost entirely to 
financing central banks, though it is ready of course to take money 
from any source : it also has been permitted since 1^20-21 to give 
advances to noii-inember depositors on the security of their deposits. 

The bank varies the terms on which it takes and gives loans in 
accordance with the general state of the money market. The pre- 
sent rate of interest charged on loans given by it is 6 per cent: it 
pays interest at 4 per cent on fixed deposits for one year, and 4J 
per cent on such deposits for two years. In 1927, as an experimental 
measure to attract long-term money, debentures for twenty years 
bearing interest at 5 per cent were offered for sale to the amount 
of five lakhs, of which more than one lakh has already been 

The rate charged on loans made to central banks was reduced 
from 7 to 6 per cent per annum with effect from September 1st 
1927 on certain conditions, of which the following are the most 
important : 

(a) the reduction was only a tentative measure, and 
(i) the reduced rate only applied to loans made to those cen- 
tral banks whose maximum rate on fixed deposits was 5| per cent 
per annum, and 4 per cent per annum in the case of local boards 
deposits excluding deposits of provident fund and security deposits. 

The bank has developed greatly of late years : its figures on 
June &0th 1927 were : 

Deposits and 
Share capital. other borrowing Reserve fond, 

including overdrafts. 
RS. RS. HS. 

5,95,770 1,16,96,648 7,00,000 

Of the deposits Es. 47,58,574 had been received from 
individuals : many of them are not members of any co-perative 
organization. The balance came from other sources as follows : 



Joint stock and other institutions ... ... ... 3*15 

Local boards, municipalities, and Government 

contractors, etc 25'07 

Imperial Bank overdraft ... t ,. 7*31 

Central banks 32*17 

Primary societies , ... 1*66 


The bank had on June 30th 1927 loans outstanding with 
central banks and primary societies amounting to Rs. 73*62 lakhs. 
No amount was overdue to the bank. 

The Imperial Bank has sanctioned an overdraft of Es. 17,55,000 
to the bank on the security of demand promissory notos, and 
Es, 10,00,000 on Government securities, but the amount actually 
drawn on September 30th 1927 was less than six and a quarter 
lakhs, and was on Government securities. And the bank in its 
turn has, as this report is written, sanctioned overdrafts to the 
extent of Es. 6,35,UUO in favour of fourteen central banks, though 
less than half of the amount had been actually utilized by them. 

In November 1926 the bank decided to offer all central banks 
a bonus of one-half per cent on loans applied for up to the end of 
the following June on certain conditions, of which the most 
impoilant were that the total amount taken by any one bank was . 
not le?s than three lakhs, and that tho bonus was spent wholly on 
supervision. Seven central banks took advantage of this offer, 
borrowing Es. 28 lakhs under its terms. The offer was not 
renewed after June 1927. Occasionally, as at present, the bank 
has more money at its disposal than it can invest locally with 
advantage, and therefore invests some of its monies outside the 

Government have ordered that the liabilities of the bank may 
not exceed twelve times its c owned capital ' (paid-up share 
capital plus reserve fund). And the standard of fluid resources 
required is the same as for central banks, save that the M.C.U.B. 
need only maintain 40 per cent of current deposits, The quarterly 
statements showing that these rules are complied with, which are 
submitted by central banks to Government, are also submitted 
by this bank : an examination of them shows that the orders of 
Government are practically always complied with. 

19. The Christian Central Bank. July 1916 saw the birth of a 
new variety of financing organization in the Christian Central Bank, 
which is entirely different to the banks already described. The 
object of its founders was to improve the economic condition of 
members of the depressed classes, as the ordinary central banks 
were unwilling for financial reasons to finance societies composed of 
these classes. In 1921-22 it undertook, on request, the financing 
of all primary societies in the City of Madras. It also finances all 
societies formed by the Labour Department, except those directly 
financed by Government and a few that are financed by ordinary 
central banks. The bank lends money to unlimited liability 
societies up to one-sixth (in some c#ses even more) of the net assets 
of the members ; the usual proportion adopted by the other central 


banks is one-eighth. It is not affiliated to the M.C.U.B. On June 
80th J927 the bank consisted of 1,108 shareholders of whom 1,059 
were societies. Its borrowed capital amounted on that date to 
Rs. 1 3 lakhs, and it had a reserve fund of Es. 35,783. The Imperial 
Bank has sanctioned an overdraft to this bank of Rs, 1,75,000, 

The bank pays the usual 9 per cent dividend, and has done so re- 
gularly save in one year. On June 30th 1927 the amount out- 
standing with societies borrowed from the bank was Rs. 11,10,167, 
of which 14-34 per cent was overdue: the corresponding proportion 
on June 30th for each of the five preceding yeara was as follows : 

Percentage of 

overduea to the 


1921-22 " 21-38 

1922-23 ... 12-27 

1923--24 8-59 

1924-25 8-17 

1925-26 9-64 

The rates of interest paid and charged by the bank are as follows : 
on deposits 2 to 5| per cent, on loans 8| per cent, of which one- 
quarter per cent is ear-marked for supervision. 

The business of the bank is of peculiar difficulty owing to tlie 
wide sphere of its operations and the absence of any substantial 
securities with its clientele. It is expected to finance scattered 
societies lying all over the Presidency, and to trust for its recoveries, 
not to the security of property, whether movable or immovable, but 
to adequate supervision, for which it relies on missionary and social 
service organizations, and on the Labour and Co-operative Depart- 

20. Land mortgage banks. As ordinary rural credit societies 
and central banks were not in a position to meet all the require- 
ments of their members in the way of long-term loans for land 
improvement, clearing prior debts, and the like, not because of 
shortage of money, but of shortage of sufficient long-term money, a 
scheme for special land mortgage banks was approved in 1924-25 
in order to attract more long-term money into the movement, and 
two were brought into existence in that year. By June 30th 1927 
ten of these banks had boen constituted, but only three had done any 
real work. These banks are formed on the limited liability basis, 
and the operations of each bank are restricted to a compact group 
of villages. The borrowing power is limited to a multiple of the 
paid-up share capital, and, on the strength of the landed property 
which the individual members of the bank pledge to it, the bank 
issues debentures carrying 7 per cent interest. Government havei 


agreed to purchase debentures equal to the value of the debentures 
which the banks are able to sell in the open market, subject to a 
limit of Rs. 50,000 for any one bank, and Rs. 2,50,000 for the 
whole Presidency. .The Government debentures carry interest only 
at the rate of 6J per cent. 

Hitherto debentures to the value of Rs. 1,46,000 have been 
sold by the Qudlavaileru land mortgage bank, of which Rs. 50,000 
were subscribed by Government and the balance by the public. 
The bank has so far issued loans amounting to a lakh and a half* 
The Conjeeveram land mortgage bank has sold debentures worth 
Rs. 71,000, of which Rs. 28,000 was subscribed by Government. 
It has issued loans up to Rs. 85,000, The bulk of * the debentures 
So far sold by both the banks has been taken up by a very few 

21. Supervising unions. The earlier unions formed, of which 
mention has already been made, were not only supervising but also 
guaranteeing unions, in which the affiliated societies were jointly 
and severally liable for all the debts consequent on loans made on 
the recommendation of their union, The constitution was subjected 
to considerable criticism, and gradually a new type of union 
developed which did not guarantee but only supervised. With the 
financing of societies it had no direct connexion. 

On June 30th 1915, excluding the Madras Provincial Co- 
operative Union, nineteen unions other than the few district banks 
known as banking unions of this constitution were in existence, 
though six had not actually started work. The ideal tfuion consists 
of twenty-five affiliated primary societies, all within a radius of seven 
miles, so as to ensure the necessary local knowledge : manv unions 
unfortunately are now too large. Each affiliated soeisty'is repre- 
sented on the union, the executive management of which is vested 
in a governing body which holds office for one year or until its 
successors are elected. The functions of a union, as described in 
the model by-laws, are generally the development and supervision 
of its affiliated societies. Funds are derived from affiliation fees, 
various* small miscellaneous sources of income, and a super vision fund, 
to which the central bank (which finances the affiliated societies) 
usually contributes four annas out of the interest earned on each 
Es. 1 00 lent during the preceding year to societies affiliated to the 
union and affiliated societies eight annas out of the interest earned 
on each sum of a hundred rupees lent. The income of a union 
therefore develops pan passu with its activities. Unions have" 
largely developed during the last ten years, .and on June 30th 1927 
there were 356 unions in the Presidency, to which 10,618 societies 
were affiliated. At the present time, save for a few non-agricultural 
societies, certain societiea in charge of the Labour Department, and 


9Qtne lying in remote tracts, almost; ail primary societies are affili* 
Qted to a union. During the year 1926-27 the unions of tha 
presidency spent about three lakhs on supervision. 

An important function of unions is to reoommend loans applied 
for by the affiliated societies to central banks : the latter insist on 
suoh applications passing through unions. In some case* these 
applications also pass through the local departmental officer, who 
adds his views on them : but in a gradually increasing number of 
cases this procedure is now being abandoned, and unions forward 
loan applications direct to the central bank. 

Each union is supposed to maintain at least one paid supervisor 
who supervises societies on its behalf ; the members of the govern- 
ing body are also supposed to visit societies themselves. Supervisors 
are generally paid salaries varying from Ks. 30 to Rs. 50 per month 
in addition to travelling allowance. They are not particularly well* 
trained for their work ; to this point we return later, 

In the year 1926-27 a total sum of Es. 2'87 lakhs was spent by 
all the unions in the Presidency, which gives an average of Es. 800 
per union. A few large unions indeed had over Rs, 2,000 each at 
their disposal. Many unions on the other hand find considerable 
difficulty in paying their supervisor regularly, and occasionally 
therefore dispense altogether with his services. Reason for this may 
be found in the fact that approximately a lakh and quarter of 
supervision fund remained uncollected during the year. On the 
other baud about the same amount was collected but not speut. 

22, Federations. In 1918-19 another form of supervising 
agency appeared in the " district councils of supervision " in the 
North Arcot and Salem districts : their chief functions were to oo- 
ordiuate the activities of unions and to supervise the few societies 
not yet affiliated to any union. A similar institution was already 
in existence in the Trichinopoly district, but it was not registered 
as a co-operative society. The need of an agency to supervise and 
co-ordinate the work of unions was greatly felt, but, before proceed- 
ing with the organization of more district councils of supervision, it 
was decided first to watch carefully the working of these three. In 
Trichinopoly the central bank controlled the entire work of the 
district council, with the result that the local unions ceased to take 
any interest in it. In the other two districts a different constitution 
was adopted, in that the councils in them were worked entirely by 
union representatives : the central banks were given no represen- 
tation on them, but were informed regularly of their activities. In 
Salem the council achieved but little : in North Arcot however some 
success was attained. Matters continued in this state till 1923 : 
from that year onward organized efforts were made to start district 
federations, as these councils then came to be termed, in each district. 


A conference was held itt March 1925 which wa3 attended by 
feptfesentatives of the M.C.U.B., central banks, federations and 
unions ; it was decided " after a long and interesting discussion " 
that the district federation, being the organization for propaganda 
as well as for the co-ordination of the work of local unions, should 
be op&n to central banks and urban banks. 

Federations now exist in nineteen districts, and the constitutions 
of all, gave three, provide for the admission of central banks as 
members. One district is bi-liogual, and a proposal to form sepa- 
rate federations for each language area is under consideration : in a 
second the 'attitude taken by the central banks prevents the birth of 
a federation, though in it an institute has been formed which 
performs some of the duties of such a body : in the third it is hoped 
that a federation will be organized at no distant date. 

The model by-laws for a district federation give representation 
to the following organizations operating in its area : all unions : all 
primary societies not affiliated to any union, and the central bank. 
Unfortunately a few federations have not yet agreed to give the 
central bank representation wbieh the latter body considers 

The duties of a federation are the co-ordination of the work of 
local unions, supervision, training, education and general propa- 
ganda. At a departmental conference held in March 19^7 the 
opinion was accepted that the supervision fund of each district 
should be pooled in the district federation, and that the control of 
the supervising staff of unions should also be vested in it : fede- 
rations also require a higher supervising staff to check the work of 
the union supervisors. Various powers, such as the sanction of the 
budgets of unions, which used to be exercised by the Registrar, 
hare now been delegated to federations. 

Federations derive their funds mainly from affiliation and 
delegation fees, contributions from affiliated unions, societies, and 
central banks, and also from Government subsidies : the average 
income of a federation in 1926-27 was Rs. 3,760. But this figure 
in itself gives a wrong impression, as some federations have over 
Rs. 8,000 each at their disposal, and some not even as many 
hundreds. Government have sanctioned grants amounting to 
Rs, 13,000 in all to be distributed to these bodies for holding train- 
ing classes for co-operative workers. In 1926-27 three fede- 
rations undertook the compilation of the annual statistics of the 
co-operative department in their districts. This most troublesome 
task often occupies much of the time of the small Government 

23* The Provincial Co-operative Union. As originally formed, 
the? Provincial Co-operative Union, "the kO.IT.," was composed 


of both individual and society shareholders, but in 1918 steps 
were taken to exclude individuals from membership, which was 
henceforth entirely confined to affiliated societies. Til] 1919 the 
union's income was almost entirely derived from the publication 
of the Madras " Bulletin of Co-operation ". Its membership 
is now open to u provincial societies ", central banks, district 
federations, supervising unions, and primary non-agricultural 
societies, with a working capital of not less than Rs. 20,000. 
Persons of knowledge, and distinction in the field of co-operation 
may be invited to be honorary members. They may take part in 
the proceedings but are not entitled to vote. 

The objects of the union are 

(i) to propagate the principle of co-operation ; 

(ii) to organize special types of societies ; 

(iii) to assist the work of local councils^ and u District councils 
of supervision "; 

(iv) to serve as the recognized exponent of non-official co- 
operative opinion in the Presidency ; and 

(v) to undertake such other work as will promote the cause 
of co-operation : 

and these objects are to be achieved by 

(a) publishing the provincial monthly bulletin in English 
and Tamil ; 

(6) publishing pamphlets and leaflets on co-operative 
subjects from time to time ; 

(0) maintaining an efficient circuLating library of co-ope- 
rative literature ; 

(d) summoning the annual Provincial Co-operative 

Conference ; 

(e) arranging propagandist tours by paid and honorary 

lecturers ; 

(/) organizing training classes for supervisors and hono- 
rary workers ; and 

(g) by other means. 

Its membership now consists of two " provincial societies ", 23 
central banks, twelve stores and trading unions, fifteen federations, 
174 supervising unions, two audit unions (these are described 
later\ and 58 non-agricultural societies: its income in 1926-27 
was fes. 9,570, which was derived from the proceeds of the sale of 
the bulletin and from subscriptions from affiliated organizations. 
The principal items that appear in the union's expenditure budget 
fkre the costs of producing the bulletin and various pamphlets and 
leaflets. This latter branch of work was only undertaken in 1926 ; 


since that year nine pamphlets and twenty-two leaflets on co- 
operative matters have been published. Its most important develop- 
ment of late years has been the institution of a training class each 
cold weather. The class lasts three months, and instruction is given 
in co-operative matters geneially. It has been attended during 
the three years in which it has been held by 100, 19 and 43 students 
respectively. Some students are the employees of non-official 
supervising agencies, but others attend it of their own accord : thirty 
of the latter are attending the 1927-28 course, 

Gpvernment in 1925 agreed to make an annual grant of 
Hg. 1,200 for flvfi years towards the cost of this course on condition 
that its syllabus was approved by the Registrar. 

The union annually convenes the Provincial Co-operative 
Conference. Proposals to change the constitution of the union to 
render it better fitted to discharge its objects have been approved 
by the general body, and the amended by-laws await the Registrar's 

A somewhat similar organization, the Andhra Sahakara 
Sammelanam, with headquarters at Rajahmundry, also publishes at 
intervals a Telugu journal on co-operative matters t At present 
this organization has no other activity. 

24. Government staff and Government and non-official expendi- 
ture on the movement. In 1915-16, when the total number of 
primary societies in existence was 1,758, the staff of the department 
consisted of one Kegistrar in the Provincial Service cadre, six 
Assistant Registrars, who were selected from Deputy Collectors, 
and 60 inspectors : the total cost was Rs. 1*46 lakhs* This staff 
was responsible both for supervision and audit. With the growth 
of societies there was a steady increase annually in the number of 
.Assistant Registrars till 1918-19, when there were eleven of these 
officials with 85 inspectors to deal with 3,547 societies. In that 
year the total cost of the staff was Rs. 2-29 lakhs. The post of 
Registrar had been placed on the Indian Civil Service cadre in 

In 1919-20, as the result of a resolution moved in the Legis- 
lative Council advocating u the formation of new societies on an 
ampler scale " so as to extend the movement to all parts of the 
Presidency, a great expansion took place, The scheme, sanctioned 
by Government to give effect to the resolution contemplated the 
formation of 4,500 new societies in two years, and an increased 
staff was sanctioned temporarily for five years, at the end of which 
time it was hoped the new societies would have found their places 
in existing or newly organized unions, and the extra staff could be 
withdrawn. In consequence of the scheme in 1919-20 the Assistant 
Registrars were increased to 18 and the inspectors to 184, at a total 
cost of Rs v 3 08 lakhs, which rose to Rs. 5*34 lakhs in the next 


year when the scheme was fully working. In 1919-20 the number 
of primary societies in existence was 4,859 : it had risen in 1920-21 
to 6,077, and in 1923-24, at the end of five years, to 9,472. The 
Government staff however had not been increased proportionately. 
The number of inspectors of all grades, which was 228 in 1920-21, 
rose only to 277 in 1923-24, and the total cost to Es. 6-28 lakhs. 
As a result the official staff became increasingly absorbed in the 
duties of audit, as the term is at present understood, and was forced 
to leave supervision more and more to non-official agency. By 
1924-25 the Registrar had only 47 inspectors available for duties 
of all kinds other than audit, and by May 1926 even these had 
been almost completely absorbed into audit. 

After 1921 Government appointed as Assistant Eegistrars men 
other than Deputy Collectors. Some were Tahsildars or Deputy 
Tahsildars : some were recruited direct, In 1923-24, of 23 Assist- 
ant Eegistrars only 12 were Deputy Collectors. There was then 
one Assistant Eegistrar for each of the then existing districts. 

In 1924-25 a reorganization of the superior staff was carried 
out with a view to make the department self-contained, less expen- 
sive, and more efficient. A new post of Assistant Eegistrar for 
each district was created, on a lower scale of pay than that drawn 
by the then incumbents : these posts were to be filled principally by 
men promoted from the inspector grade : the existing Assistant 
Eegistrars were styled Deputy Eegictrars, and were reduced to 
nine in number : eight were placed in supervisory charge of groups 
of districts, and one was personal assistant to the Eegistrar. It 
was intended that the Deputy Eegistrars, relieved of the routine of 
district work, which was to be in main performed by the Assistant 
Hegistrais, should pay adequate attention to general administration, 
and. particularly to the organization of non-credit societies. 

A Joint Registrar was appointed for a short period in 1920- 
21, but the post was abolished in deference to the wishes of the 
Legislative Council. It was revived in April 1926, to provide 
relief for the Eegistrar, who was over-burdened with work, much 
of it routine. The Joint Eegistrar now deals with non-credit work, 
under the general supervision of the Eegistrar, though occasionally 
the latter entrusts to him particular pieces of work in connection 
with credit societies. 

In December 1927 the total Government staff, other than 
clerks, peons, etc., employed in the Co-operative Department 
(excluding the 67 inspectors lent to work under the Labour 
Department) was as follows : one Eegistrar, one Joint Eegistrar, 
9 Deputy Eegistrars, 27 Assistant Eegistrars (in addition to three 
temporarily sanctioned, for training of staff) : 24 senior inspec- 
tors, who are mainly employed on the audit of central banks and 
federations, and aie not available for audit of primary societies: 


7 senior inspectors employed m offices : 10 senior inspectors employed 
on organization of non-credit work, in addition to 14 temporarily 
sanctioned for the same purpose : two senior inspectors for land 
reclamation in Tanjore : 208 junior inspectors for audit of primary 
societies, and 4 sanctioned temporarily for the same purpose : 24 
junior inspectors temporarily sanctioned for liquidation purposes : 
48 junior inspectors temporarily sanctioned for general administra- 
tive work : one junior inspector for land reclamation in Tanjore : 
and 82 junior inspectors employed in offices. 

It will be seen that, apart from the staff employed on special 
duties and that temporarily sanctioned, no inspectors of either 
grade are available for work other than audit, 

The sanctioned scale of pay is as follows : 

Deputy Registrars 

Assistant Registrars 
Senior inspectors 
Junior inspectors 

(a) for those who were Deputy Collectors, 
their grade pay : no allowance ia now 
attached to the post as was formerly 
the case : 

(6) for others, Rs. 30030450 : 
selection grade Hs. 50050850. 

Rs. 150-5200-10250. 

Es. 804100. 

Rs. 40460280. 

The following statement shows since 1915-16 the annual 
expenditure both by Government and non-offioial agency on the 
co-operative movement. From these figures have beeu excluded 
loans given by Government for special purposes, as to house-build- 
ing societies, land mortgage banks (debentures taken up by 
Government), loan and salo societies (for constructiou of granaries), 
depressed classes societies, fishermen's societies., and laud reclama- 
tion societies. These loans all carry interest, and will normally all 
be recovered in due 1 course : 

Percentage of 

Percentage of 


expenditure to 
total working 


expenditure to 




























. 3-08 








































It will be seen that the proportion that Government expendi- 
ture bears to the total working capital is, since 1920-21, steadily 
decreasing annually, and that non-official expenditure on the 
movement is steadily increasing. 

It is interesting to compare the Government expenditure on 
the Co-operative Department in Madras and in other provinces. 
The size of the movement in each province must be taken into 
consideration. The following are the important figures : every 
possible care has been taken to compare 4 like with like ? : thus 
loans from Government have been excluded in all cases. The 
figures are for 1926-27 :- - 

number of 
members of 



Madras .. , .. . .. . 

830 622 



R8. A. P. 

U 2 

646 000 



Bombay . . , , . . 

482 730 





1 11 9 

140 614 



United Provinces * . . . . . . . . . 


1 36 


The total amount of loans granted by Government to co-opera- 
tive organizations of all kinds outstanding on June 30th 1927 was 
Rs. 23*42 lakhs, composed of the following items : 





Building societies ... 

Land mortgage banks (debentures) 

Loan and sale societies for construction of granaries 

Loans to depressed classes societies 

Kallakuriohi agricultural and industrial society under 

the Stato Aid to Industries Act 
Fishermen societies 
Land reclamation societies 

25. Audit and audit unions. The Maclagau Committee contem- 
plated the formation of a non-official stuff for audit in the strict 
sense of the word, and also an official staff for a c super audit \ 
which was to include some functions of supervision. When their 
report was submitted in 1915 Government were considering a 
proposal to charge fees from all societies for audit, which had been 
up to that time carried out by the Registrar's ordinary field staff : 
the proposal originated in the difficulty of providing sufficient 
staff to cope with the ever-increasing number of societies* After 


however much deliberation Government decided to drop the proposal, 
which had aroused considerable opposition, as premature : but at 
the same time they accepted the proposals of the Maclagan Com- 
mittee, and stated that in their opinion the direction in which 
progress should be looked for was in the formation of controlliiig 
groups of societies, and the gradual devolution of the functions of 
audit and supervision to them. During the following years groups 
or unions of societies were formed accordingly, and they have been 
already mentioned. But these were supervising bodies, and have 
never undertaken audit in any form. Until 1923-24 Government 
conducted free of charge the audit of all societies without discrimi* 
nation. But since that year ten audit unions, to which are 
affiliated 91 primary societies, have been formed for purpose of 
audit alone : they are all composed of urban societies, which feel 
the special need of both a careful concurrent nnd a speedy final 
audit. During 1926-27 the income of all these unions was 
Rs. 11,675, and their expenditure Rs. 9,673. In addition to them 
four important banks, among which are included the M.C.U.B. and 
the Christian Central Co-operative Bank, and two large societies, 
have made separate arrangements for their audit, and pay for it. 

The desirability of charging audit fees generally was considered 
again in 1920 and 1925, but it was decided that the financial 
condition of societies which contribute to supervising unions, as do 
the great majority of societies in the Presidency, would not permit 
them to contribute to the cost of audit also. With the exception 
therefore of the cases mentioned above, all audit is still done by 
Government free of charge : in this respect the conditions in Madras 
differ from those prevailing in many other provinces. 

Audit is a statutory duty section 17 of Act II of 1912 
and therefore Government, through the Registrar, are under a legal 
responsibility to ensure that all societies of every description are 
audited each year, either directly by their own officers or by 
independent competent auditors. For this purpose a staff of 
inspectors, whose functions are confined to audit alone, is maintained 
by Government, who laid down in 1923 that each such inspector 
should audit 100 societies a year. Experience, however, has shown 
that this standard is quite impossible to attain in practice, and each 
inspector is now expected to audit sixty societies annually. This 
scale has practically been accepted by Government. Of each 
society in their charge these inspectors carry out a ' preliminary ' 
and a c final ' audit: the latter should be taken in hand as soon 
after June 30th as possible. But in practice the final audit of 
many societies is not completed till long after that date. Since 
1920 many new societies have been formed, but the number of audit 
inspectors has not been regularly increased in proportion. The 


Registrar has therefore been forced to devote most of his few other 
inspectors, who were originally intended for administrative work, to 
audit ; and on June 30th 1927 the total staff of inspectors available 
for < field ' work was employed altogether on audit. 

26. Reserve funds. Primary societies of all kinds invest their 
reserve funds in the central bank with which they deal ; central 
banks invest their reserve funds in the M.C.TLB. and the latter 
invests all its reserve fund in Government paper. 

The net working capital of the movement on June 30th 1927 
amounted to Es. 737-70 lakhs, including the additions made to 
reserve funds as a result of the audit for the year ending on that 
date. The amount was composed of 


Share capital paid up by individuals ... ... 139*57 

Deposits and borrowings, excluding investments 506*17 

of co-operative societies in each other. 

Loans from Government ... ... ... 23*42 

Reserve fund ... ... 68*54 


The owned capital in the movement, namely the share capital 
actually paid by individuals and the reserve fund, was 28*21 per 
cent of the total net working capital. 

Both in the figures for working capital and share capital given 
in the All-India statistics there is considerable duplication, and we 
are unable to compare these figures with the corresponding figures 
for other provinces of India ; but we note that the reserve fund of 
the M.C.U.B. in 1925-26 was higher in proportion to its working 
capital than that of any other central bank in India except that 
of Burma. 

The growth of reserve funds in Madras is necessarily hampered 
by the fact, already mentioned, that the margin available for 
working expenses with primary societies in this Presidency is lower 
than in any other province in India, and hence the profits of these 
societies are necessarily smaller. The rates also at which primary 
societies lend to their members are much lower in Madras than in 
any other province of India except Bombay. There, as in Madras, 
the usual rate is 9| per cent, but in all other provinces the 
prevailing rate is either 12| or 15 per cent. 

27. Arbitration and liquidation. Under the rules framed under 
section 43 (2) (I) of the Co-operative Societies Act, 1912, the 
Registrar is given power to decide disputes in certain cases between 

members of co-operative societies. The work has increased greatly 
of late years, and no fee is charged for it. In 1916-17 1,097 such 
cases were disposed of : prior to that year the figures were insignifi- 
cant. In 1926-27 over 21,000 such references were made, and 
over 7,000 references, involving nearly Rs. 7| lakhs, were pending 
at the close of the year. Over 43,000 decrees covering JKs. 32 J- 
lakhs, given in such cases were awaiting execution on June 30th 
1927. Over 1,300 cases dealing with " co-operative disputes " 
were also filed in civil courts in 1926-27, and at the close of that 
year 2,667 decrees which had been given in such cases, covering 
rupees one lakh and a half, were pending execution. 

Sections 39 to 42 of the Act prescribe the procedure to be 
followed -when for any reason the registration of a society is can- 
celled, and its liquidation is consequently ordered by the Registrar. 
He is bound under the Act to appoint a u competent person " as 
liquidator. The liquidator appointed is practically always one of 
the Eegistrar's subordinates. The following table shows the per- 
centage that the number of societies ordered to be liquidated bears 
to the total number of societies in existence for each of the last five 
years : 






During 1926-27 the liquidation of 71 societies (59 credit and 1 2 
non-credit) was ordered, and liquidation proceedings were com- 
pleted in 28 societies. At the close of the year the liquidation of 
258 societies was in progress : of these, ten have been under liqui- 
dation since 1915, 17 since 1916, and 90 others for more than three 

28. Education and training. An account has already been given 
of the training classes held by the Provincial Co-operative Union, 
which receives a subsidy for the purpose from Government of 
Ks. 1,200 annually. The similar subsidies to federations, which 
have also been mentioned, were first given in 1925, when their total 
amount was Ks. 2,000. They now amount to Es. 13,000, and a 
further sum of Rs. 1,000 has recently been given to the Hood 
Institute, Tanjore, for a similar purpose : in that district no feder- 
ation exists at present. The subsidies are used to cover the 
expenses of classes which are held at different centres to give 
instruction in co-operative principles to office-bearers and members 
of societies: in 1926-27 the Chingleput federation held classes in 
17 different centres, and spent the whole amount of its subsidy. 


But the South Kanara federation in the same year only spent one 
quarter of its subsidy of a thousand rupees : the classes held with 
the aid of that sum were attended by 46 members of primary 

So much for the education and training of non-officials in 
co-operative principles. The orders as to the training of officials 
are as follows. Probationary Assistant Registrars should be given 
five months' training, much of which is practical. All candidates for 
the post of inspector must have passed at least the School Final 
examination, but only graduates are now generally appointed to 
these posts, These men should receive six months' training ; much 
of it also is practical. 

Each Assistant Eegistrar must convene every six months a 
meeting of all the inspectors in his district: supervisors employed 
by non-official supervising bodies are also invited to attend these 
meetings. Each of them lasts a week, during which a course of 
intensive training in co-operative principles is held. Advantage is 
also taken of these courses to conduct co-operative propaganda in 
neighbouring villages. 


29. Preliminary. In this chapter we deal with the problems 
which the different varieties of co-operative organizations offer, and 
suggest possible solutions for them. So far as possible each form of 
organization on which we make proposals is dealt with in the order 
already adopted. Some forms however which offer the same problems 
are dealt with together : the problems common to all forms of co- 
operative activity are also treated in the same manner. 

In the next paragraph we put forward a proposal to divide 
agricultural loans into long-term and short-term loans, as we 
consider this the most important *of all our proposals, and proper 
understanding of it is necessary if our proposals on the forms of 
organization which it affects are to be easily understood. 

Generally speaking, we consider that the co-operative movement 
in the Presidency has done good, especially in the general reduction 
in the rate of interest charged by ordinary money-lenders on their 
loans to cultivators. But much remains to be done : the movement 
has not yet touched, even nominally, the lives of more than ten per 
cent of the people : in many respects it requires correction, in some 
a change of system, and in some additional attention. 

The evidence we have received is to the effect that the monies 
invested in the movement at present are, generally speaking, safe, 
and will prove ultimately recoverable. Anxiety is however felt 
on some matters, especially the increasing amount of overdues, 
and immediate steps should, we most strongly urge, be taken to 
remove it. 

The following are the principal reasons given to us for this 
increase in overdues : 

(1) bad harvests ; 

illiteracy and ignorance of co-operative principles in 
primary societies, and indifference of panchayatdars, who are in many 
cases themselves defaulters ; 

(3) the lack of proper supervision due to ill-paid and ill- 
equipped non-official staff ; 

(4) the sudden withdrawal, without due notice, of the depart- 
ment from supervision ; 

(5) failure to recognize their financial and co-operative res- 
ponsibility on the part of central banks ; 

(6) an exaggerated sense of security in the minds of financing 
institutions, which is based on a wrong impression of the implications 
of unlimited liability, and failure to realize the seriousness of the 
results of enforcing that liability ; 


(7) the lack of proper attention to the granting of extensions ; 

(8) the granting of loans without proper consideration of their 
purpose, and of the repaying capacity of members ; 

(9) benami transactions ; 

(10) the fact that, even when penal interest is levied, the rate 
of interest charged is lower than the market rate in many districts, 
and members who have also borrowed from money-lenders in conse- 
quence repay the latter first. Decree interest is also lower than the 
market rate : execution proceedings present much difficulty, and the 
low rate of interest encourages defaulters to raise every possible 
obstacle ; 

(1.1) the failure to take prompt and sufficient steps for the 
recovery of overdues. 

Varying stress was naturally laid on different causes in different 
districts. The recommendations made in our report will, we think, 
remove many of them, but many can only be rectified by better work 
generally in co-operative institutions, and we feel that we cannot 
over-emphasize the necessity for full attention to all these points by 
co-operators. The better education of panchayatdars is particularly 

The figures supplied to us by the twenty-seven central banks, 
which replied to the special questionnaire sent them, show that 1,363 
societies have not borrowed from them for three years, and 1,613 
for two years : more than 3,000 societies are therefore in a dormant 

The position is serious, and must have resulted largely from the 
formation of societies without proper enquiry or preparation. This 
danger must be avoided in the future, and immediate attention must 
be given to the rectification, if possible, of all dormant societies, or, 
failing this, to their liquidation. 

The policy regarding long-term and short-term (of not more than 
one year) loans appears to us to have changed radically within recent 
years. Of the total amount of loans granted by agricultural societies 
during the year 1926-27 only 1.6 '70 per cent was given for cultiva- 
tion purposes. 

We draw special attention to the several cases of embezzlement, 
especially in primary societies, which have come to our notice. It is 
argued in some quarters that, if honorary workers are punished for 
such offences, sufficient honorary work will not be forthcoming. We 
cannot agree to this view, and we consider that every possible step 
should be taken to protect members of primary societies and others 
from losses caused by misfeasance, and that, in all cases where proof 
is forthcoming, proper punishment should be inflicted. 


30. Division of agricultural loans into long and short-term loans. 
The failure to distinguish long and short-term, business is in our view 
the most unsatisfactory feature of the co-operative movement at the 
present time. The distinction, which is an axiom of commercial bank- 
ing, applies equally to co-operative banking, although we recognize 
that rural co-operative banks have a special security in their un- 
limited liability, since the speedy realization of such security on any 
large scale rapidly would be impossible, and would in any case 
result in the ruin of the members for whose benefit the societies were 

"We thjnk that one of the reasons for the present large overdues 
is the defect in the present organization under which no facilities are 
granted for the prompt disposal of short-term loan applications : 
cultivators do not repay their loans, as they think that if they do so 
they will be unable to obtain the money they require in time for their 
next cultivation season. 

The unlimited liability of members ceases two years from the 
date on which they resign from a society, and in the meantime there 
is nothing to prevent them from alienating their property. Loans 
to societies are based on the property statement, and much of the 
property may not be available to the society when the period for a 
long-term loan has run its course. Such loans therefore entail quite 
different considerations from short-term loans, and the combination 
of the two is extremely dangerous, 

We have found during our tours that the localities in which 
co-operation is healthiest are those which have laid greatest stress on 
short-term biisiness. On the other hand, in certain districts where 
long-term business preponderates, some of the evidence was to the 
effect that the ryots were deeper in debt than formerly. 

We propose to define short-term loans as those repayable in whole 
out of the next harvest (normally the period of repayment will not 
exceed twelve months, but in a few special cases, such as sugarcane 
and betel leaf cultivation, it may extend up to two years) : and 
long-term loans, as those repayable in instalments over a period of 
years out of the annual savings of the borrowers. 

We have departed from the usual practice of emphasizing the 
purpose of the loans in our definitions, though in general short-term 
loans will be for crop finance and long-term loans for other finance. 
The maintenance expenses of a ryot however though necessary to 
enable him to continue cultivating his crop are not actually invested 
in seed, manure, etc. On the other hand, expenses in connexion with 
the deepening of wells or applying large amounts of manure to lands 
directly relate to the crops, though they can sometimes only be repaid 
out of the savings of a series of years, If therefore the purpose is 


emphasized, many qualifications are necessary, and we think our 
definitions bring out clearly the economic implications which are, 
that in the one case the loan is repayable out of the harvest, and in 
the other out of savings. The distinction we make is not new. Our 
experience has convinced us that the ryot understands it and appre- 
ciates its economic value and Mr. Hemingway in pages 16 to 18 of 
his manual distinguished short from long-term loans in much the 
same way. The financial and economic implications and benefits of 
such a division do not however seem to have been emphasized or 
kept in view by the department or by any co-operative organizations. 

"We consider that the following advantages will accrue from 
treating short and long-term loans as distinct classes of business. 

(1) Short-term loans for cultivation expenses are usually 
urgently required, as a ryot must sow his seed and conduct other 
agricultural operations immediately the land is in a suitable condi- 
tion. We find that usually he makes no preparations for such 
requirements until the need actually arises. The present system 
under which short and long-term loans are included in the same 
application to central banks results in both classes of loans being 
treated similarly. Adequate consideration of applications for long- 
term loans necessarily, in many instances, takes considerable time, 
but the nature of short-term loans is such that prompt disposal should 
usually be possible. In practice we find that the time now taken in 
dealing with such loans is often as long as two months. The ryot 
cannot obviously wait for any such period, and in consequence goes 
to the money-lender : the division will enable societies to dispose of 
short-term applications separately, and therefore with less delay. 

(2) Even so a short delay would probably be inevitable in some 
cases. But it should be easy for societies functioning normally to 
prepare forecasts of their cultivation requirements and, once carefully 
prepared, the amounts would differ very little from year to year. 
These forecasts should be considered by the unions and central banks 
before the cultivation season commences and suitable limits of credit 
fixed for such societies. All that the societies will then have to do 
will be to forward promissory-notes to the central banks from time to 
time as necessity arises, up to the limit fixed, and central banks will 
be able to remit the amounts required without any further formalities. 
We do not think that central banks need maintain fluid resource on 
any definite scale in such cases, though they will naturally arrange 
their finances in such a way as to avoid all possible delay in making 
such payments. 

(3) When a loan is made to a society for short and long-term 
purposes on one bond or promissory note, registration of the docu- 
ment is usually desirable so as to extend the period of limitation 
from three to six years. Further, long-term loans are usually on 


mortgages which must be registered. We think that in general short- 
term loans repayable out of the next harvest may safely be granted 
on the promissory notes of societies alone, and that these need not be 
registered. In the evidence we were told that such registration was 
one of the causes of delay in short-term finance, and we think there- 
fore that a further saving of time may be effected in this manner by 
the division proposed. The Imperial Bank and the M.C.U.B. may 
we consider be asked to relax their present rules, which require 
registration, in the case of short-term finance. 

(4) The evidence we have obtained points to 1he fact that short- 
term loans are of more economic benefit to the ryots than long-term 
loans. The money rate for short-term loans is in many districts 
higher than that for long-term loans, as money-lenders take advantage 
of the urgency of the need : in most districts the real rate is higher, 
as money-lenders often insist on crops being sold to them at pre- 
arranged unfavourable prices, or else require payment of their dues 
immediately the crops are harvested when prices are low. Any 
scheme therefore which facilitates the prompt sanction of short-term 
loans appears to us of very great importance : adequate short-term 
accommodation will provide an extra margin of profit out of which 
ryots may reduce their long-term indebtedness. 

(5) "We think the division we propose will help to educate ryots 
against misuse of loans and in punctual repayment. Unless crops 
fail there will be no satisfactory reason for default. It will be easy 
to judge whether extensions are desirable or not. At present they 
are in very many cases not granted when needed : in a few cases 
they are granted without justification. Under our scheme central 
banks will be enabled to regulate extensions in the case of short-term 
loans with a reasonable degree of accuracy. We think further that 
central banks will be enabled to grant short-term finance to societies 
which are in default in their long-term finance for the benefit of good 
members, and so prevent such members leaving the societies. On 
the other hand societies in default in their short-term finance when 
the crops have not failed will be clearly shown up, and must be 
radically dealt with. 

(6) We have pointed out that, while short-term loans are 
repayable out of the proceeds of harvest, long-term loans can only be 
repaid out of savings. To make this point clear, if cultivation 
expenses are Es. 125 , the crop realises Es. 250, and maintenance 
expenses are Es. 100: savings will be Es. 250 minus (125 -f 100), 
viz., Es. 25. A short-term loan may be paid in full out of the Es. 250 
received for the crop, and Es. 25 is available for repayihent of long- 
term loans. We think that if the division we propose is made, 'and 
the c lien ' over the crop is converted into a ; charge ' (as recom- 
mended in our paragraph on primary societies), an improved basis 



for the assessment of credit will be arrived at. We deal with this 
point further under primary societies. 

(7) Central banks and the department will be enabled to see 
clearly the amounts of short and long term finance, and to take steps , 
when necessary, to regulate their deposits accordingly. 

(8) "We consider that the division proposed will assist the 
finance of the movement, especially in times of stress, by enabling 
the discount of promissory notes by central banks in favour of the 
M.C.U.B. in respect of their short-term transactions, as commercial 
banks prefer to discount short-term paper definitely relating to short- 
term produce transactions. This point is of special importance in 
relation to the Beserve Bank which it is proposed to establish. Our 
considered opinion is that the scheme we suggest will make co- 
operative short-term promissory notes of not more than twelve months 
usance suitable for discount by this bank. The existing provision 
fixes the period at six months : this was the period originally fixed 
in the United States of America, but it was found necessary to 
increase it to nine and then to twelve months. 

Nature of division. 
We recommend that in primary societies, 

(1) separate application forms and separate promissory notes 
on paper of different and distinctive colours be adopted for short and 
long term loans ; 

(2) separate ledgers with leaves of different colours be main- 
tained for short and long term loans. Borrowings from central banks 
and, where necessary, deposits for short and long term purposes (as 
defined above) should be differentiated in separate accounts , if not in 
separate ledgers ; 

(3) short and long term loans, and deposits and borrowings, 
should be shown separately in the balance sheets, and, in the case of 
the long-term items on both sides, the amounts due for each succeed- 
ing year should be separately shown. We also recommend that in 
a footnote to the balance sheet an analysis of the loans should be 
given as follows : 

Short-term loans. 

Not yet due. ... SUre 

u \(2) mortgage. 


Once (1) surety. Twice or \(l) surety. 

2) mortgage. more. / (2) mortgage. 

Overdue ... ... {& ****' 

L(A) mortgage. 


Long-term loans. 

Not yet due. ... ( (J) 8ure ^ 

* L(2) mortgage. 


Once (1) surety. Twice or 1(1) surety. 


(2) mortgage. more. J (2) mortgage. 

Overdue / ^ SUrety> 

L/ C/C/ W-ttt? ... ... i/O\ i_ 

L(2) mortgage. 

We note that in the primary societies in Bengal a register in 
vvhich the borrower and sureties sign is substituted for the ledger 
and promissory note in the case of short-term loans, and we commend 
this proposal for adoption. 

We recommend that in central banks 

(1) all forms of application to the M.C.U.B. and all promis- 
sory notes should be in different colours for long and short term 
loans ; 

(2) separate loan ledgers should be maintained for (a) short 
and long term loans, and (6) short and long term deposits and 
borrowings. In thq case of loans this is already done in some 
cases, as the Imperial Bank grants cash credits only on the security 
of short-term promissory notes ; 

(3) short and long terms loans and deposits should be shown 
in balance sheets separately, and, in the case of long-term loans and 
deposits, the amounts due in succeeding years should also be shown 
separately. This is already done by the Tanjore District Co-opera- 
tive Central Bank, Limited, Kumbakonam. An analysis of short 
and long term loans not yet due, extended, and overdue, should be 
given as in the case of primary societies. 

In the M.C.U.B. a distinction in promissory notes and ledgers 
should be made as in the case of central banks, and the balance 
sheets should give similar information. 

The Central Provinces Co-operative Committee (1922) recom- 
mended unanimously a division of long and short term business on 
the above lines. In fact it went further, in proposing separate cash 
books and balance sheets for the different transactions. This 
recommendation was accepted by the Central Provinces Government, 
but does not appear to have been adopted in practice. We do not 
think that separate cash books and balance sheets are essential if the 
divisions we suggest are fully observed without them, and their 
omission will greatly simplify the working of the scheme. Separate 
columns in the cash book may however with advantage be provided. 
While writing our report we have received a copy of the Annual 
Eeport of the Co-operative Department in Bengal for 1926-27, and 
we note that a scheme very similar to that we suggest has recently 


been adopted in that province. In however both the Central 
Provinces and Bengal emphasis is laid on the purpose of the loan, 
whereas we have preferred to lay it on the source of repayment. 

It is of course an indisputable financial principle that short-term 
deposits should be invested in short-term loans. We consider that 
every effort should be made to provide long-term credit through the 
agency of land mortgage banks at the earliest possible date. When 
these facilities have been sufficiently provided co-operative institu- 
tions should confine themselves to short-term loans and to inter- 
mediate loans to be repaid by annual instalments in periods not 
exceeding, at the most., six years. In the meantime, as ten-year loans 
have become such an integral part of co-operative finance, we fear 
that their abrupt discontinuance would create a great dislocation in 
the movement. We however emphasize the fact that safe finance 
demands that genuine efforts be made to attract long-term deposits, 
by offering higher rates of interest if necessary, so that periods of 
deposits will as far as possible synchronize with those of loans. The 
extent to which this is done will be clearly brought out in the new 
forms of accounts and balance sheets which we suggest, and should 
have the special attention of the financing banks and of the 

31. Agricultural credit societies Classification. Societies in this 
Presidency are at present classified entirely on the basis of overdues. 
We do not consider this method satisfactory, as societies with no 
overdues may in other respects be extremely bad. In some provinces 
an endeavour is made to take into account in classification the work- 
ing of societies from all aspects, and this is in accordance with the 
recommendations of a conference of Kegistrars held not long ago in 
Bombay. These recommendations will be found in Appendix III. 
We recommend that a scheme of classification on these lines be drawn 
up and adopted in Madras. Societies in the two upper classes should 
be given special facilities by central banks. 

Panchayat. We do not recommend payment of panchayatdars, 
except in respect of clerical work undertaken by them. The evidence 
we received was strongly in favour of payment of a fixed remunera- 
tion, even if it be only Ks. 5 a month, to secretaries, in cases where 
they undertake this work : if the work is done by a clerk, or some 
person other than the secretary, the payment will of course be made 
to him. The basing of remuneration on profits or loans granted, as 
at present, provides a temptation which should be avoided. Small 
societies will find it difficult to make such payment but, as the 
evidence was so strong on the point, we consider it should be a first 
claim on a society's margin : elsewhere we make proposals which will 
increase this margin in most cases. 


Dividends. The dividends, which are limited to 65 per cent, are 
usually unimportant sums when distributed among several members, 
although in the aggregate the amount is appreciable. If this amount 
is available for other purposes, it will assist in the payment for 
clerical work and in the building up of reserve funds. We recom- 
mend therefore that payment of dividends be discouraged. 

Property statements. "We have observed a very general lack of 
thoroughness in the preparation and revision of these statements. 
They form the basis of the credit allowed to societies, and much 
greater attention must be paid to them by all concerend : annual 
revision is essential, and it is the duty of the unions to see that this 
is done, In our paragraph on audit we express the opinion that 
their verification is the primary duty of the auditor. A note of 
warning is necessary here. Although the loans granted to societies 
must primarily be based on the total property of the members, the 
loans granted by societies to members must be based on the capacity 
of the members to repay (1) out of the proceeds of their crops in the 
case of short-term loans, and (2) out of their savings in the case of 
long-term loans. We further strongly recommend that in future, 
property statements should be in the form of stitched books, and not 
of loose sheets, and should contain full details of the property, 
including the survey numbers. 

Borrowing capacity. In our paragraph on long and short-term 
loans we have pointed out that the repaying capacity of members in 
relation to long and short-term loans involves different considerations. 
We consider that the panchayats of societies, with the help of unions, 
should be able to fix suitable limits for each class of loan. We think 
that in general the present total limit of borrowing power of societies, 
which is based on one-eighth of the net assets of members, will 
suffice to cover both classes of loans ; but this is a matter which 
should have the attention of the Kegistrar. 

Loans. Under long and short-term loans we have dealt 
fully with this matter. We emphasize the fact that short-term loans 
must be granted for suitable periods in relation to the harvests, and 
that they must be available immediately the need for them arises : 
the instalments on long-term loans must be within the normal 
repaying capacity of the borrowers and payable at convenient dates. 
These considerations appear to be almost universally ignored at 
present. We also emphasize that it is necessary that much more 
attention should be paid than at present to extensions of loans : we 
notice that extensions granted by central banks to societies are often 
not passed on by the latter to their members, with the result that 
penal interest is improperly charged on the members' loans. Exten- 
sions of short-term loans should only be granted in the case of crop 


failure : in such case they should be freely sanctioned, while, if crops 
have not failed, repayment should be enforced before the next culti- 
vation season. 

facilities for loans on harvested crops should be granted as freely 
as possible, so as to enable ryots to hold up their produce for reason- 
able prices. The by-laws should however provide that such loans 
should only be granted on produce gro\vn by a member, as it is 
desirable to exclude the middleman from such transactions. If a 
loan on harvested crops is desired by a borrower who has already 
taken a loan for the cultivation of that ,crop, it should not be given 
unless the first loan is immediately repaid. When sanctioning each 
loan, an adequate margin on the value of the crop should be provided. 
The produce must be carefully secured by the panchayat. and pro- 
missory notes taken from borrowers for the amount of their loans. 

In Chapter II we have said that 49 '33 per cent of the loans in 
primary societies are secured by mortgages and 48 '44 per cent on 
personal security. Most of the evidence we received points to a 
greater degree of punctuality in the repayment of surety than of 
mortgage loans : the former are also more co-operative. The danger 
that borrowers may alienate or mortgage their property elsewhere, 
and that the resignation of members of societies may radically lessen 
the security of the unlimited liability offered to central banks, make 
a mortgage backing desirable in the case of most long-term loans : 
short-term loans should, we think, ordinarily be granted on personal 
security. But a warning is necessary against the tendency of central 
banks and primary societies to consider loans on mortgages as pro- 
perly secured, and therefore necessitatiog no attention if overdue. 
If a large number of such mortgages had at any time to be realized 
in any one district, the prices obtained would usually be very small : 
in fact the land might prove unsaleable, as possible purchasers are 
often confined to local inhabitants. Further, the whole co-operative 
spirit disappears if banks and societies adopt this attitudfe. 

"We recommend that the lien over the crop, cattle, agricultural 
implements, etc., in respect of which loans are granted, which is 
provided by section 19 of the Act, should be converted into a charge. 
This has been done in section 24 of the Bombay Act. 

We do not consider that the lending rate of societies should be 
reduced below 9f per cent. The need of paid clerical work, 
adequate supervision, and of building up a reserve fund is so great 
that no decrease is possible. 

Deposits* All possible steps should be taken to encourage local 
deposits in primary societies. Local deposits are governed by knowl- 
edge of the working of a society, and pressure to pay at inconvenient 
times is unlikely ; terms of repayment should allow as great latitude 


as possible. But a primary society is not a business institution, and 
deposits from outside the locality should therefore be discouraged. 
Current accounts should ordinarily be forbidden. 

Inspection and supervision. In our paragraph on this head we 
lay the responsibility for inspection of primary societies on central 
banks, and for supervision on unions and federations, subject to the 
ultimate responsibility of the Registrar. 

Audit. In our paragraph on audit we draw attention to the 
fact that statutory audit has not been fully carried out, and make 
recommendations for its improvement. 

Accounts. These should be as simple as is compatible with 
clarity. Many of the registers detailed in the manual are unneces- 
sary and are in fact not in use. In our paragraph on long and short- 
term loans we make proposals for the division of the accounts of 
these two classes of loans. 

Over dues. We have already said that the steady increase in over- 
dues during recent years is a source of great anxiety to the depart- 
ment and to co-operators generally. In our paragraph on central 
banks we point out that the Government statistics do not entirely 
represent the correct position. We have already said that extensions 
granted to societies by central banks are in many cases not passed on 
to society members, and also that loans are often granted in excess 
of the repaying capacity of members : these causes probably con- 
siderably inflate societies' overdues. The evidence we received 
points to bad harvests being an important cause of overdues in the 
dry districts, though some co-operators of the wet areas, where the 
crops are secure, give, we consider, undue prominence to this factor. 

We think that any comparison with other provinces is entirely 
valueless, in the absence of lull knowledge of the conditions existing 
in such provinces, and the methods in which overdues are calculated. 

In the case of some overdue loans we observed that both the 
borrower and surety were dead. These loans should receive imme- 
diate attention. We recommend that the negligent panchayatdars 
should be made personally responsible, after enquiry, for the repay- 
ment of loans of this nature which have become time-barred. It 
should be noted that a society must now obtain an acknowledg- 
ment in writing relating to the liability, when a payment is made, 
in order to extend the limitation period. 

We recommend that overdue loans should be transferred to a 
separate ledger, and that quarterly reports on them be submitted to 
the urion and the central bank. , 

In our paragraph on liquidation we express the opinion that 
there is*a large number of societies with heavy overdues, which shoulcj 
be rectified or liquidated without further delay. 


Reserve fund. In our paragraph on reserve funds we make 
suggestions regarding the future investment of these funds, 

Liability of members. In paragraph 50 we recommend that the 
liability of deceased members be extended to two years. 

Money-order commission. Co-operators have for sometime past 
been urging that, in addition to the facilities at present granted by 
Government to societies for remitting money to banks, an exemption 
from payment of money-order commission on monies transmitted 
through the post office should be allowed. We understand that this 
concession is already granted in the Punjab and Bombay. We 
recommend that it should also be granted in this Presidency. 

32. Urban credit societies Urban banks. Urban banks form 
much the most important class of urban credit societies. The 
liability of their members is limited, and in consequence the problems 
they offer have little in common with those of unlimited liability 
societies. The sufficiency of the security for each individual loan is 
of the utmost importance, as on it alone repayment depends. Fur- 
ther, limited liability does not provide the incentive for the interest 
of the members in the financial affairs of each other which is secured, 
or should be secured, by the mutual responsibility of unlimited 
liability : in any case the large number of members in most urban 
banks precludes the possibility of such mutual interest to any great 
extent. In fact the only apparent difference between these banks 
and joint stock banks is that borrowers from the former are compelled 
to purchase shares, in respect of which they have votes at general 
meetings and receive dividends out of the profits. 

Management. Prom these considerations it appears obvious 
that efficient and at any rate semi-expert management is an essential. 
In some of the banks we visited this condition did not appear to 

Membership. In many quarters it has been proposed to 
restrict the number of members in urban banks, so that (I) the ma- 
nagement may have more personal knowledge of the borrowers, and 
(2) the members may have some mutual knowledge of each other. 
As indicated above however we think that the business of these 
banks is more technical than personal, and that mutual knowledge 
among members is of little consequence when the liability is limited. 
Technical knowledge is best obtained when adequate payment is made 
for it, and the larger the bank is, the larger are the funds available 
for such payment. The impressions we obtained during our tours 
support this argument: we found banks with 2,000 members doing 
very well, while many, of the small banks were not prospering. 

Borrowing power is limited to five times the paid-up capital 
plus reserve fund. We do not recommend any change. We notice 
that urban banks are discouraged from borrowing from central banks 


to induce them to take local deposits which would not b3 available 
for central banks. While we agree that this policy is generally 
sound, we see no reason why central banks should not finance when 
necessary urban banks on the security of their promissory notes, 
backed by the security of the individual promissory notes of their 

Deposits (a) Current accounts. Some banks appear to be 
doing very precarious business under this head. They are taking 
large sums from non-members at miremunerative rates of interest 
calculated on the daily balances. We think that current accounts 
should only be opened for members, and that interest should be 
calculated on the minimum monthly balances, as is done by joint stock 
banks. We also suggest that a small text book be prepared dealing 
with the lav/ and practice relating to cheques and current accounts, 
and supplied to all urban banks, 

(6) Savings lank accounts. Wo observed that deposits of this 
nature are small, though the facilities granted to depositors are 
generous. Such accounts, and any accounts which provide facilities 
for thrift, should be encouraged in every possible way. 

(c) Fixed deposits. We think that single fixed deposits for 
amounts large in proportion to a bank's transactions should be avoided 
especially from non-members. Depositors should be asked to split 
such amounts into smaller deposits for suitable periods with due 
dates synchronising, as far as possible, with the dates when loan re- 
payments are expected. As idle money will thus be avoided, banks 
may find it profitable to offer a slightly higher rate for such 

The question of fluid resource for deposits is dealt with under 
that head. 

Loans. A large proportion of the loans given by these banks is 
on the security of mortgages : in fact some banks almost confine 
themselves to this business. In some cases decrees have been obtain- 
ed on a very large number of such loans, but, owing to the difficul- 
ties of execution, no further steps have been taken. On the other 
hand, as the decreed rate of interest is much below the market rate, 
the borrowers have not made, and are not likely to make, any 
attempts to repay. We consider that urban banks should invest a 
much larger proportion of their money on the security of personal 
suretyship, and should pay much greater attention than at present 
to the repaying capacity of their members. The principle of invest- 
ing the bulk of short-term money in short-term loans, the punctual 
repayment of which may reasonably be expected, should be carefully 
kept in view. 


Accounts. The ledgers should have the daily balances thrown 
out, and the interest calculated on the c decimal product 5 system. 
It will be necessary to supply product tables to each bank. This 
will effect a very great saving of time to the auditor, who will only 
have to check the interest instead of recalculating it, as in most cases 
at present. We also think that in general more attention should be 
paid to the form of the books and accounts, and more assistance in 
maintaining them given to bank officials by the department than is 
the case at present. 

Balance sheets. "We think that balance sheets should show the 
deposits and loan instalments falling due each year, and also the 
extensions of loans granted and the overdues. 

Supervision and audit. It is clear from what we have said that 
we consider the supervision of urban banks to be a different problem 
from that of rural societies. If the efficient management we advocate 
is provided the need of supervision will not be so great. Further,, 
the advice required will be more on technical than on administrative 

At present urban banks are affiliated to supervising unions, to 
which they pay the usual affiliation fees, subject to a maximum of 
Es. 150. In however the section dealing with audit we propose 
that an audit organization be formed for central banks and such urban 
banks as desire to join. Urban banks which join this organization 
may disaffiliate themselves from a supervising union. In such cases 
the auditor, in view of his general experience in auditing other urban 
banks, should be well qualified to give advice and assistance. It 
will be necessary however for the Begistrar to arrange to give such 
extra supervision as may be necessary in these cases : his supervision 
will be more necessary in the case of those urban banks which are 
not affiliated to this central organization. 

Other urban credit societies. These are generally special societies, 
formed for special classes of people, as Government servants, factory 
employees and the like. In most cases senior officials or employees 
take an active interest in these societies, and the department has 
little to do with them. In some cases instalments of loans, etc., are 
deducted from wages or salaries and paid to the societies en Uoc. 
This practice can scarcely be termed co-operative, but in many cases 
it is a useful precaution, and enables societies, which otherwise would 
probably cease to exist, to function satisfactorily. 

In a few instances societies of employees have adopted' by-laws 
which provide only for deposits and not for loans. These are purely 
thrift societies, and in such cases a reserve fund is, we consider, 
unnecessary. In fact, the compulsory allocation of a portion of the 

profits to a reserve fund, which can never be required, reduces the 
tangible advantages of membership, and therefore may discourage 
thrift, the object for which the societies are formed, "We think they 
should be exempted from the compulsory maintenance of a reserve 

In other societies of this nature no provision has been made for 
savings bank accounts in the by-laws, and the members appeared 
ignorant of the fact that such facilities are possible. We think that 
the by-laws of all such societies should provide for savings bank 

33. Societies for the depressed, backward , and similar classes. The 
condition of these classes is peculiar. They are extremely poor and 
have no property which they can pledge. Their only asset is their 
labour and character, and these form the only basis for their credit. 
Co-operative activity, if only confined to credit, is of little value to 
them. Co-operation in their cases must be employed to stimulate 
thrift, to increase their earning capacity, and to secure for them a 
larger margin of income by better marketing. 

Co-operative societies for these classes arc unable inmost cases to 
secure from the ordinary non-official supervising agencies the care 
and attention which are in their case peculiarly essential. The 
special problems which they offer centre round organization, supervi* 
siori, and finance. 

Since responsibility for the general amelioration of the condition 
of the depressed and labouring classes lies witli the Labour Depart- 
ment, we consider that, in districts where that department is work* 
ing, it should undertake all work connected with the organization 
and supervision of societies for those classes, as part of its general res- 
ponsibility for them. The present Labour Commissioner desires to be 
relieved of all duties in regard to co-operative societies, except the task 
of stimulating and supervising them in a very general way, He would 
leave their actual management and supervision with the Co-operative 
Department, under which, he thinks, the special inspectors allotted 
for these societies should work, We however fear that, if those 
functions are entrusted to the Co-operative Department, they will 
not receive due attention, and that there is danger of their being 
neglected in favour of the easier and more promising work among the 
higher classes. We would therefore entrust, as at present, to the 
Labour Department the organization of societies and all duties of 
supervision, including the writing up of accounts when necessary. 
But the Co-operative Department should discharge the statutory 
functions of audit and liquidation. We consider however that, since 
in that case another Government department would be in charge of 
supervision, the audit might be only one final audit at the close of 


the year : but it mutt be carried out by the regular staff of the Co* 
operative Department, and not, as in some districts at present, by the 
co-operative inspectors working under the Labour Department. The 
responsibility of the Labour Department should also extend to 
societies organized by missionary and other philanthropic bodies. 

In districts where the Labour Department is not at present 
working there are two classes of societies to be provided for, those 
directly supervised by a missionary body or a recognized philan- 
thropic agency, and those in charge of the Co-operative Department. 
We consider that all should be under the Co-operative Department 
until the Labour Department commences operations in the district, 
when they should be transferred to it. 

Kallar societies and Criminal Tribe societies are under the Labour 
Department, and should so continue. The few Kallar societies in 
Tanjore which are not under the Labour Department should be 
transferred to it. 

On the same principle, we consider that the Fisheries Department 
should be responsible for all fishermen's societies in districts where 
that department is sufficiently organized to undertake that respon- 
sibility, and that the special inspectors allotted for the societies 
should work under it. In districts where this is not the case, the 
societies should continue under the Labour Department until the 
Fisheries Department is in a position to undertake their supervision. 

Each department should be made to realize fully its respon- 
sibilities : shortage of staff has at present, we consider, caused 
insufficient appreciation of them. 

The audit of all societies should be carried out by the regular staff 
of the Co-operative Department. A copy of the auditor's report 
should be sent free of cost to the District Labour Officer where such 
officer exists. In the paragraph dealing with audit we recommend 
that financing banks should be given, free of charge, copies of audit 
reports on all affiliated societies. Should that proposal not be 
approved in the general case, we strongly urge that it be given effect 
to at least where these societies are concerned. 

Depressed class societies should be affiliated, wherever possible, 
to existing unions of caste societies as is the rule at present. It will 
be an important duty of the officials of the Labour Department to 
educate these societies, so that they may be fitted to take their proper 
place in the unions. As a means to this end, and also to protect the 
interests of these societies till they are able to look after themselves, 
the District Labour Officer should have a scat on the governing body 
of the federation, and the inspector concerned a seat on the govern- 
ing body of the union. We strongly disapprove of any policy of 
segregating the societies for depressed classes, but we are not opposed 

to the organization of separate unions for them in localities where a 
sufficient number of such societies can be formed within a very small 
area. We fear that the experiment of forming one separate union 
for a whole district, which is being tried in one instance, is not likely 
to succeed, and we do not think that it should be imitated. Appli- 
cations for loans to societies should continue to come through the 
District Labour Officer or Deputy .Registrar, with the recommenda- 
tion of the union, to the bank. 

There should be a uniform scale of one -inspector for every 25 
depressed class societies for all districts, including Madras City. We 
consider. it inadvisable to reduce the number, as is the present rule, 
when the total number of societies in a district exceeds 100. The 
individual societies in a district require the same amount of super- 
vision, whether the total number in the district is less or more than 
100: the only real result of the present rule is that, the more 
societies therfc are in a district, the less they are supervised. 

Where a district has a District Labour Officer the inspectors 
should work under him. Whore there is no District Labour Officer, 
they should work under the Deputy Registrar, forming a special 
staff under him for the supervision of this class of society. They 
should on no account be utilized for work connected with any other 
class of society. 

In view of the very special work required of them, inspectors 
should have better qualifications than inspectors in the ordinary line 
in the department. Wo recommend that they should be agri- 
cultural graduates on a scale of Es. SO ] 20. They should undergo, 
in addition to ordinary co-operative training, a special course of 
training for about twelve weeks, calculated to fit them for dealing 
with practical problems relating to better farming, supplementary 
occupations, irrigation, joint purchase and sale, and especially thrift. 
The course should be prescribed by a Board consisting of the heads 
of the Labour, Co-operative, Industries and Agricultural Depart- 
ments or their nominees, one representative of the Provincial 
Co-operative Union, and two of the Christian Central Co-operative 
Bank, one of whom should ordinarily be Secretary to the Board. 
Candidates should be on. probation until they have undergone this 
course and successfully passed an examination at its conclusion. 
Special attention should be paid to testing a candidate's suitability 
for work among depressed classes. The examining board should 
consist of the Labour Commissioner, theRtgistiar, or their nominees, 
two members from the Christian Central Co-operative Bank, and one 
from the Provincial Co-operative Union. 

The scope for* the spread of the co-operative movement among 
these classes is practically unlimited. Their economic condition calls 
urgently for this development, but we consider it extremely 


dangerous to encourage artificially or hastily the spread of the 
movement among them : we prefer that it should grow naturally 
through the steady efforts of a properly trained staff, We consider 
that a staff, with the special qualifications and training which we 
have proposed, will meet the need. 

The present guarantee of intensive supervision given by the Labour 
Commissioner to the Christian Central Bank satisfies neither the 
bank nor the Commissioner. The only real safeguards for the bank 
lie in proper effective supervision and adequate knowledge of the 
actual work of societies. "We consider that our proposals for 
adequate staff, adequately trained, will ensure effective supervision, 
and that our proposals for the supply of audit and inspection notes 
to the bank will provide it with adequate knowledge. The bank 
will, like other central banks, also have responsibility for inspecting 
the societies financed by it. If these proposals ave agreed to, the 
certificate should, we consider, be abolished. It follows that the 
bank must have absolute freedom to refuse to finance any societies of 
which it considers that the conditions are unsatisfactory. 

The Christian Central Co-operative Bank occupies a peculiar 
position, and renders special service to special types of co-operative 
societies. It is practically the Central Bank for depressed class 
and labour societies throughout the Presidency. Under depart- 
mental rules all societies of -these classes are affiliated to this bank. 
This arrangement must continue, as these societies cannot at present 
expect to receive similar financial facilities from the central banks in 
their districts. 

Finally, the bank was formed with the intention that it would, 
in addition to the provision of ordinary credit facilities, make finance 
available to societies through agencies engaged in schemes for the 
general economic uplift of the depressed classes. We hope that in 
the future this part of its policy will be more vigorously pursued 
than in the past. 

34. Agricultural demonstration and supply societies, and connected 
matters. Agriculture is by far the most important industry of the 
Presidency, and that great benefit can accrue to the agriculturist by 
proper application of co-operative methods is certain. Societies for 
better farming, for the co-operative purchase of manures, ploughs 
and the like, for the co-operative sale of crops, for the provision of 
finance to enable the cultivator to withhold his crops from the 
market at harvest time (this is the particular function of loan and 
sale societies, which are separately dealt with), .all offer means of 
increasing the cultivator's income. But these societies are not easy 
either to organize or to administer successfully. 


An account has already been given of the present activities of 
the co-operative department in this direction. The results are 
encouraging : but we consider that very much more remains to be 
done. We attach such importance to this matter generally that we 
recommend that a special officer of the grade of Deputy Director of 
Agriculture should be placed entirely under the Eegistrar : his duty 
would be to encourage, improve, and increase by all possible means 
the existing societies, to add to their numbers, and to explore all 
other forms of co-operative activity which would better the lot of 
the cultivator. He should devote particular attention to the forma- 
tion of societies amongst agriculturists for the joint marketing of 
their produce, in order to eliminate the middleman's profits. 

This officer should be carefully selected, and should work so far 
as possible through the Registrar's ordinary staff. 

We have considered the possibility of the formation of co-opera- 
tive societies to consolidate fragmented holdings : such societies have 
been very successful in at least one other province. The conditions 
however vary from province to province, and we think that in 
Madras as a whole the problem is not so acute as elsewhere : in 
must districts of the Presidency the difficulties of such societies 
would be very great. But if a scheme of such consolidation on an 
entirely voluntary basis, offering a prospect of success, is forthcoming 
in any district, all reasonable assistance should be given to it. We 
strongly disapprove of legal compulsion in any form in the matter. 

35. Loan and sale societies. We consider that loan and sale 
societies, as described in paragraph 9, offer a very promising means 
of increasing the wealth of cultivators, by enabling them to withold 
their crops from market till they can obtain reasonable prices. The 
prices ruling for agricultural produce for a short period after harvest 
are usually abnormally low, as ryots who have no financial facilities 
are forced to sell their crops to pay the money-lenders' dues and to 
provide for other expenses. We consider therefore that every assist- 
ance in their formation should be given by all concerned. 

We have been told that in some cases these societies are being 
utilized by middlemen for whose advantage they are not intended. 
We recommend therefore that a by-law should ba adopted limiting 
loans to produce grown by members. 

These societies are formed on a limited liability basis, and central 
banks should therefore see that the security is effective from all 
points of view. The following precautions appear necessary : 

(I) the produce must be examined as to its quantity and 
quality, and it must be subsequently watched to see that deteriora- 
tion does not set in : this is particularly necessary in the case of 
groundnuts ; 


(2) the amounts of loans sanctioned must be fixed as a pro- 
portion of the value of the produce, so as to provide adequate margin 
for contingencies. Possible fluctuations in price need special 
attention, and each class of produce needs separate consideration in 
this connexion ; 

(3) all produce should be securely stored under double lock 
and key, and one key should be with the central bank ; 

(4) hazardous and non-hazardous produce should be stored 
separately ; 

(5) insurance should be effected at least on hazardous produce. 
It should be on the full value of the produce stored, and not on the 
amount of the loans, as, if it is on only a portion of the value, 
insurance companies would pay only a corresponding proportion of 
any loss. An insurance register should bo opened showing the daily 
balance of ( 1) hazardous and (2) non-hazardous produce on hand. It 
should also show the policies effected and lapsed, and the balance of 
insurance outstanding under each of these heads ; 

(6) insurance policies should be in the names of u the central 
bank and of the loan and >sab society for their respective rights and 
interests ", and should be held by the former ; 

(7) the central bank should inspect the produce and verify \he 
insurance periodically. 

Loan and sale societies which are unable to obtain finance from 
a central bank should be allowed to finance themselves from commer- 
cial banks. 

Many witnesses stated that Government loans for the provision 
of godowns are a necessary precedent to the increase of these societies. 
We think this difficulty is over-emphasized, as suitable godowns are 
in many cases available for rent : but in some places such facilities 
appear necessary. 

36. Weavers' societies. Weaving is, after agriculture, one of the 
most important industries in the Presidency. Weavers however as 
a class are peculiarly difficult to deal with owing to their ignorance 
and penury. Further the introduction of the fly-shuttle loom has, 
we learn, greatly increased the production of cloth, and this is one 
reason why the supply has at present outrun the demand : the 
greatest difficulty that confronts the weaver at present is to find 
a market for his cloth. 

The help given by the co-operative movement to weavers so far 
is negligible; most of the weavers' societies are doing little, if any, 
work. Yet that some, at any rate, of the weaver's troubles can be 
lessened by the application of co-operative methods is certain. We 
think that Government should take special measures to" help this 
community : we do not consider that the steps so far taken to that 


end are adequate : a knowledge of weaving, and of the many con- 
nected problems, cannot be acquired in a few months' training. From 
our observations we consider that the key to the problem lies in (a) 
marketing the textile products, and (ft) the possibility of guaranteeing 
quality to the agencies which undertake the marketing. These 
indicate certain practical difficulties of organization and supervision, 
which cannot be met by the Co-operative Department except with 
expert assistance. We therefore recommend that a textile expert 
should be engaged in the first instance for five years, and employed 
directly under the Eegistrar. His functions would be to help the 
existing weavers' societies in every way, and to organize new societies 
in suitable places. Among his most important duties would be to 
study the demands of the public, to assist the weavers in getting 
cheap yarn, and to dispose of their manufactured goods. In the last 
matter the aid of the Triplicane or other large stores might well be 

37. Building societies. We notice that most societies have not 
adopted the equated system of repayment. Eepayments under this 
system in the initial years are considerably smaller than under the 
alternative system, and its adoption would enable many persons who 
cannot meet the big repayments in the early years required by the 
alternative S) stem, which are often much in excess of rental values, 
to share in the advantages offered by these societies. One reason 
given us for this is that members often desire to make payments in 
advance of the due date, and that, if they do so under the equated 
payment system, no benefit accrues to them. We recommend that 
a rebate of one half per cent below the rate charged should be 
granted for each complete month to members who make payments 
in advance, and that Government should grant a similar * rebate 
to societies. 

The department assumes that all members of such societies are 
town-dwellers, and can pay their instalments monthly. It has in 
consequence laid down a rule that repayments must be fixed 
monthly. We have however found that in many societies there are 
urban members with rural interests, and the necessity for allowing 
annual instalments has been strongly urged by witnesses. We 
Consider that, when a society desires it, option should be given to 
allow members to pay monthly or annually, as may be suitable to 
each individual case. 

We recommend that societies should give their members as much 
assistance as possible in the preparation of plans and the construction 
of houses : little help seems to be given in this matter at present. 
This will be facilitated if societies draw up definite building 
programmes from time to time : an additional advantage of this 
4 8 


arrangement would be that materials could be purchased jointly in 
respect of the ho uses to be built under each scheme, and some saving 
in cost thereby secured for members. 

Building societies should be relieved of the burden of acquiring 
land for roads, and of constructing roads and side drains, 

"We consider that in certain instances insurance against fire is 
desirable. The Eegistrar should have power to insist on insurance 
when he thinks necessary, and wherever possible in such cases he 
should arrange for joint insurance. 

Since the rate of interest on capital has fallen, and Government 
are now able to borrow at lower rates than formerly, the ordinary 
rate of interest on loans by Government to these societies may well 
be reduced by one half per cent. 

"We are of opinion that the rate of penal interest (2 pies) is too 
high, and suggest its reduction to 1| pies. 

We notice that the ledger prescribed for the ordinary primary 
society is in use in several building societies. This form of ledger 
is quite unsuitable, and should be replaced. The department should 
give more advice and assistance to societies in the keeping of their 
books than at present. 

38. Stores. Some stores are working well, but the condition of 
many is unsatisfactory. For this there are various reasons : the 
most important of them are the absence of competent management, 
a lack of loyalty to their stores on the part of members, and the fact 
that some stores are located in places which are unsuitable or too 
small. Nevertheless the success of the Triplicane Stores shows that, 
under suitable conditions, co-operative stores can be both useful and 
successful. But we emphasize certain points in connection with 
these institutions. Expert management is for them a necessity, and, 
to provide for this, a large turnover is required. It follows that 
there is little likelihood of their being established successfully in 
villages or even small towns. The evidence we have obtained shows 
clearly that the ordinary villager finds no need to join an organization 
of this kind, and that it has little chance of success except where a 
special potential clientele in the shape of a considerable population of 
Government servants, middle class families, or big individual 
customers, as devasthanams or colleges, exists. This factor also 
tends to confine the possibility of success to stores established in the 
larger towns. To meet the needs of the village population, a joint 
system of purchase on indent appears to us to have much greater 
chance of success, and to "be fraught with considerably less risk, 
This system is already working in some societies with success. 

. 39. General. Much less has been done in non-credit work 
generally than in credit work. The former however is far more 
difficult than the latter, and in no province of India, so far as we 
are aware, has non-credit work as yet made as much progress as 
credit work. 

We understand that an officer of Government is now engaged in 
making a survey of the cottage industries of: the Presidency. We 
suggest that his report should be studied jointly by the Departments 
of Agriculture, Industries, Co-operation, and Labour, and the 
Kegistrar-General of Panchayats : concerted action on some, at 
any rate, of the recommendations should be more fruitful than 
independent action. 

We desire to emphasize an opinion, which is based on the 
evidence of many witnesses, that not enough is now being done to 
co-ordinate the work of the " nation-building " departments, which 
do not, we consider, at present realize sufficiently what a powerful 
instrument for the furtherance of their work is available to them in 
the co-operative movement. We therefore suggest that Government 
consider the desirability of directing district officers of the 
Co-operative, Agricultural, Veterinary and Industries Departments 
to have periodical conferences, at least once a quarter, to co-ordinate 
the activities of their departments, and to submit reports to Govern- 
ment of the progress made therein. The presidents of central banks 
and federations should be invited, whenever possible, to attend these 

Rural reconstruction. Since the Maclagan Committee reported a 
new slogan has come into vogue in this Presidency and also 
elsewhere in India. It is u rural reconstruction." While this term 
is used in diverse meanings, and is generally understood in a vague 
and indefinite way, it is undoubted that it stands for a considerable 
amount of actual service that is being attempted in many parts of 
the country, with varying success. With a certain amount of atten- 
tion the movement, at present in an incipient stage, to which the 
term refers, can become an effective avenue for social service with the 
help of an increasing number of voluntary workers. Much loss of 
time and energy which now occurs will then be prevented, and the 
consequent loss of enthusiasm avoided. 

Those who speak of rural reconstruction, whatever they mean by 
it, all agree in thinking that the co-operative method is the key to 
their work : what they mean is that co-operation is not enough, that 
the ryot needs a comprehensive service, much of which should be 
done through the co-operative method. The assistance to this new 
movement, which is now called for, must issue therefore from the 
Co-operative Department, and by all the other Development Depart- 
ments of Government in close Go-operation. 


40. Central banks Constitution. As already stated, at their 
inception the capital of central banks was entirely held by individual 
shareholders. Affiliated societies were subsequently allowed to hold 
shares, and a policy developed under which no new shares were 
issued to individuals. The total elimination of individual share- 
holders is still considered in many quarters to be the ultimate aim of 
the movement. In effect this would place the control of the deposits 
in the central banks entirely in the hands of the societies which 
borrow them. The evidence we received is almost unanimous 
against such elimination in the near future, and we are strongly of 
opinion that no further steps should be taken in this direction for 
some time to come. We think that fresh enquiry will be necessary 
before the resumption of such a policy is considered, and that it 
should include an examination of the success or otherwise of the total 
elimination of individual shareholders in other provinces or countries 
where it has taken place, combined with the conditions existing, and 
the relations of co-operative to commercial institutions in such 
provinces or countries. 

The present constitution of central banks provides for representa- 
tion of every affiliated society and individual shareholder on the 
general body. The board of management is comprised of a repre- 
sentative from every supervising union and a fixed number of 
representatives elected by the individual shareholders. This results 
in an increasing number of representatives as new unions are formed, 
and a constantly diminishing ratio of individual to union representa- 
tives : further, in many cases the board of management is already 
unwieldy. We recommend that the board be limited to 21 mem- 
bers, 14 being representatives of unions and 7 of individuals, i.e., a 
ratio of 2 to 1. All central banks should conform to this ratio. 
In practice, as the individual shareholders mostly reside in towns 
and union representatives in the district, the former have power 
disproportionate to their numbers. We also recommend that the 
representatives of the individuals on the board of management be 
elected by the union and individual members of the general body 
jointly 5 as we consider that this practice will tend to more 
harmonious working, With regard to the union representatives on 
the board of management, we propose that each district should be 
divided into areas, and that members of unions in each area should 
elect common representatives every two years. 

We recommend that central banks be allowed to co-opt members 
to the board of management who have special knowledge which may 
prove useful : such co-opted members should have no votes. 

We are very strongly of opinion that the old by-law providing for 
a separate secretary and treasurer should be introduced in banks where 
it has been changed : the danger of the same man holding both posts 
has been very forcibly brought home to us. 


In general, we are in favour of a paid full-time secretary, but 
we have noticed that one or two banks with honorary secretaries are 
amongst the most efficient : as an alternative therefore we propose a 
qualified and competent manager on an adequate salary in cases 
where this is preferred. The same man should not be secretary of 
the central bank and of the federation, but we think that the presi- 
dent, where possible, should be common to both. 

Borrowing capacity. The borrowing capacity of central banks 
was increased from eight to ten times their paid up share capital 
plus reserve fund by GKO. No. 1381, Development, dated 
September 22nd 1926. The Maclagan Committee recommended eight 
times as the maximum u in the interests of depositors." We consider 
that no further increase should be made. 

Custody of cash. Bales should be adopted requiring that the 
cash balance should be kept in a fire-proof safe under the double 
lock of two members of the executive committee, or of one member 
of the committee and the paid secretary or manager. We observed 
in two instances that the cash balance was kept in the secretary's 
house : this practice is extremely objectionable. Cashiers should 
give security for the amount of till money which they are allowed 
to hold, and the secured amount should not be exceeded. Central 
banks should not leave cash with primary societies, as is the practice 
in at least one district. 

In the paragraph on audit we recommend that cash balances be 
checked in detail at each audit. This necessary precaution has not 
been taken in the past. 

Loans and cash credits. Accounts should be kept in such a way 
that the repayments in respect of each promissory note are clearly 

Necessary attention does not appear to be paid to security forms 
in all cases : thus we think that promissory notes deposited as 
security for cash credits should be accompanied by a " continuing 
guarantee agreement " : this does not seem to be done. Legal advice 
should be taken on the security forms adopted. 

Central banks should pay much more attention than at present 
to the fixing of proper periods for loans suitable to the purpose and 
to the repaying capacity, and also of convenient dates for repayment, 
which would usually be within three months after harvest. Very 
little attention seems to be paid to these points at present, and this 
is one of the causes of the increasing overdues. In the paragraph 
on long and short term loans we make recommendations which will, 
we feel confident, go a considerable way towards the rectification of 
these defects. Central banks should pay special attention to the due 
dates of short-term loans : if they are not paid, enquiries should at 


once be made as to the nature of the crops. If they have failed, 
extensions should be granted freely : if not, repayment must be 
insisted on, failing which no further short-term credit should be 
granted, and the outstanding loans must be liquidated by taking 
whatever steps are necessary in the matter. 

Central banks which grant loans to societies organized for labour 
should secure themselves by arranging that payments for contracts 
be made direct to them, and not to the secretaries of the societies 

"We consider that the rates of interest on loans to societies should 
be reduced, wherever possible, in present circumstances, to 7| per 
cent, so as to increase the margin available for working expenses and 
reserve funds in societies. 

Deposits. We consider that in taking current accounts central 
banks should exercise more caution than they do at present. In 
some cases we have found that they earn little or no profit on these 
transactions, and have run considerable risks in taking large sums at 
too liberal rates of interest. Further, the maintenance of current 
accounts requires a knowledge of the law and practice relating to 
cheques etc., which neither the central banks nor the department 
usually command. We think that the provision of a text-book 
containing the necessary information on these points is very advisa- 
ble : the contents of this book and also of departmental circulars on 
legal points should be verified by an expert banker and lawyer. 

In the paragraph on fluid resource we make certain proposals 
regarding the amounts and due dates of fixed deposits, and we make 
recommendations regarding the standard of fluid resource. In the 
paragraph dealing with deposits of local bodies we stress the special 
precautions necessary for these deposits, and suggest a special 
arrangement for fluid resource in their case. 

Inspection of societies. In our paragraph on supervision and 
inspection we recommend that these functions be sharply distin- 
guished, and that the responsibility for inspection of societies be laid 
on central banks. 

Audit. In our paragraph on audit we propose that central bankfe 
should in future pay both for their concurrent and final audits, and 
suggest the formation of a central audit organization. 

Accounts. We consider that in many cases economy of labour 
may be effected by improvements in the form of accounts. 

Loan and sale societies. Under this head we discuss the points to 
which attention should be given when central banks grant loans to 
these societies. We consider that central banks should do all they 


can to encourage the formation of such societies, as a safe outlet for 
their funds. 

Dividends. We consider that, if the dividend paid in any year 
falls below the maximum, the shortage may be made up in subsequent 
years when the profits allow. This is at present only permitted 
when a bank is liquidated. Such procedure will give an incentive to 
the collection of overdue interest. 

Overdues. The figures for overdues shown in the Government 
statistics do not entirely represent the correct position. On the one 
hand extensions are not given to societies on any co-ordinated plan, 
and we consider that a large portion of the overdues might have been 
legitimately extended : further, in one or two districts the old system 
of treating the whole loan as overdue, when one only instalment has 
not been promptly paid, still exists, and this inflates the figures. On 
the other hand, we have found existing in more than one bank the 
very reprehensible practice of granting wholesale extensions which 
have not been applied for by the primary societies, and in one case a 
radical redistribution of instalments was also made for the sole 
purpose of reducing the overdue figure. In some banks also book- 
keeping ruses have been resorted to, such as keeping the books open 
for some days after Jane 30th, and in others collecting agents have 
been sent to the societies just before the close of the financial year. 
The former practice should in every case be prohibited, and the latter 
in cases where collection at this time is inconvenient to the ryot. 
Central banks should be compelled to keep a register recording the 
history and financial position of each affiliated society. This record 
should be written up annually, in such a way that the position of 
dormant as well as active societies is continually under review, and 
any steps that appear advisable for recovery of overdues taken without 
undue delay : to assist in this, overdues may be transferred to a 
special ledger. To permit a dormant overdue to run on without a 
constant review of the position is very dangerous, as members of the 
society may resign, or alienate their property, and the security on 
which the loan is based rapidly diminishes. 

Reserve funds. We deal in a separate paragraph with the 
investment of the reserve funds of central banks, and with the deposit 
of the reserve funds of societies in those banks. 

41. The Madras Central Urban Bank. The position of the 
$L C. II. B., the apex bank, differs materially from that of the 
primary society or central bank. The primary society should rely 
in its working on local knowledge of its borrowers, and on the fact 
that the mutual responsibility of its members under unlimited liability 
provides an incentive to supervision of members by members : this 
is the true co-operative idea. In central banks the members have 
adequate knowledge of only their own areas, and but little of others ; 


further, there is limitation of their liability to their share capital, and 
in consequence no financial incentive to a feeling of joint responsibi- 
lity. In the M.C.TLB. tl*e component central banks are so far 
from each other, and from Madras, that, apart from the information 
supplied by the department, the bank has in a very large measure 
to rely on the balance sheets and returns provided by central banks : 
its management therefore calls for practical training and financial 
knowledge of a very high order. 

Its constitution is now as follows : 


One hundred and eighty-four individual share- 
holders with one share each, holding shares value. 18,400 

Thirty central banks holding shares value . . 5,68,900 

Twenty-nine primary societies holding shares 

value . , . . . . . . . . . 8,470 


It will be noticed that, although individual shareholders prepon- 
derate, their financial interest is small : there is therefore no incentive 
to dividend hunting. 

The general body meets once a year, when voting is according to 
shares held. 

The board of management consists of 35 members, 5 of whom 
are elected by the individual shareholders and 30 by the central 
banks : each bank elects one in the manner provided in its by-laws. 
The board meets twice a year, when each member has one vote. 

The executive committee consists of nine members (including the 
President and Yice-President) elected by the board 01 management 
from among themselves. The by-laws provide that a majority shall 
be representatives of central banks, and that the President and Vice- 
president and at least one of the members shall reside in Madras City. 
The committee meets ordinarily once a month. The President has 
been given power to sanction loans up to any amount between 
meetings of the committee : such loans are ratified at the next 

In general, our remarks regarding individual shareholders in the 
paragraph on central banks apply in greater force to the M.C.TJ.B. 
We do not however think that any definite ratio of central bank 
to individual representation need be fixed : at present most of jthe 
representatives of central banks are individual representatives of 
these banks, and are therefore accustomed to bear in mind the 
interests of depositors. Most of us think that the present number. (5)- 


of representatives of individual shareholders should be increased, 
so as to provide a wider field of choice for the members of the 
executive committee. Some witnesses are of opinion that the 
board of management is as a whole unwieldy, but we think this 
matter may be left to the good sense of the bank itself. The present 
management appears to us to be efficient : after our remarks above, 
we need not further emphasize the importance of this being 

As in the case of central banks, we consider the M.C.TT.B. should 
be allowed, and indeed encouraged, to co-opt to the board of 
management members who have special knowledge which may prove 
useful : such members should have no vote. 

"We recommend that power be given to the M.C.TJ.B. to inspect 
central banks financed by it : in fact the responsibility for such 
inspection should be laid on the bank. 

We are of opinion that its present limit of borrowing power, viz. , 
twelve times its capital and reserve, should not be further increased. 

We consider that the Christian Central Bank may well be 
affiliated to the M.C.TT.B. It is at present the only central bank not 
so affiliated. 

Attention should be given to such further recommendations in 
our paragraph on central banks and in other paragraphs as apply to 
the M.C.U.B. 

42. Land mortgage banks Central land mortgage lank. We 
are of opinion (and the experience gained so far supports it) that 
very slow progress will be made unless a central land mortgage bank 
is formed in Madras to float debentures on mortgages transferred 
to it by primary land mortgage banks, and to finance the latter out 
of the proceeds of such debentures. The total value of such deben- 
tures should not exceed 50 per cent of the value of the total proper- 
ties mortgaged by the members of primary land mortgage banks. 

The central bank should be constituted with primary land 
mortgage banks and individuals as shareholders : the latter should 
not be allowed to borrow. The dividend should not exceed 7^ per 

There should be a trustee or trustees for debenture holders to 
ensure that the central bank fulfils its obligations to them : debenture 
holders should also be represeated on its management. 

A reserve fund should be provided, and should be built up as 
rapidly as possible. 

The borrowing power of the bank should be twenty-five times its 
paid-up capital and reserve fund. 



We recommend that interest on the debentures issued for the 
five yaws should be guaranteed by Government, who should be 
represented on th/e bank. The debentures should be made trustee 
investments, as in Bombay. 

consider 25 to 30 years a reasonable period for these 
debentures : the maximum period of loans should be 30 years. 

The rate of interest on loans should not exceed 9 per cent, and 
we recommend th$t th# equated scheme of repayments be adopted. 

We are of opinion that the bank should only finance primary 
taod mortgage banks, and not primary co-operative credit societies. 
it should not accept short-term deposits. 

The by-laws of the bank should provide for the constitution of 
a sinking fund. A proportion of the debenture redemption money 
must be fixed for each year : the proportion will naturally depend 
upon the length of the period and other features of the debentures. The 
monies so coming in may be invested where a profitable investment on 
wbich the bank does not lose is available. We visualize this contin- 
gency as not being improbable : if debentures are floated at 5 or 5 J per 
cent for 20 or 25 years, the chance of gilt-edged [securities tljem- 
selves being obtainable at similar rates is by no means negligible. 
The bonds of local bodies or other quasi-official corporations which 
may be certified by the Registrar as safe investments may be avail- 
able from time to time at the same, if not higher, rates.^Failing such 
investments, if its debentures are available for sale in the open 
market, the bank may purchase them not above par. If they are 
not $o available, it may repay debenture holders in some systematized 
manner. We consider the following to be the best method. Bach 
year the b&pjc should issue six months' notice of the quantity it wishes 
tp redeem. If a suffiqient number of debentures is not voluntarily 
forthcoming for redemption, the debentures up to the required 
amount may be retired by drawing lots. The bank may offer cash 
or new bonds up to the value of the bonds so redeemed, but the 
debenture holders should have liberty either to accept or refuse the 
new bonds, and to demand payment in cash. 

Primary land mortgage lanks. As stated in our paragraph on 
long and short-ten^ Ipans we are of opinion that every effort should be 
made to form primary tend mortgage banks, wherever possible, to 
provide long-term credit for the ryot. At present ten are in 
existence, of which only three are doing real work. Details of these 
banks have been given already in Chapter II. to oA^ 

The investigation of titles, valuation of properties, and the 
assessing ef the credit of borrowers with special relation to their 
repaying capacity, are the most important functions in the working 

of primary land mortgage banks, and Constitute the factors which 
determine their soundness. Ihe proper discharge of these duties 
requires revenue experience, legal equipment, and business capacity, 
"We recommend that in at least the initial stages, until the banks are 
able to secure the services of competent paid officials y Government 
should place at the disposal of each primary land mortgage bank the 
services of a competent officer to value properties and assess the 
credit of borrowers. His work would, of course, be supervised and 
checked by the directors. Arrangements should be made by the 
banks for the examination of title-deeds by competent legal prac- 
titioners. We consider that, as the work involved is of a highly 
technical nature, banks should, as far as possible, rely upon a paid 
staff for the transaction of their business. 

The consequences of default are serious, and very great Attention 
must therefore be aid to the repaying capacity of borrowers : soirld 
workable rules whitfh will ensure this precaution should be riiade 
and strictly observed. 

We consider that the maximum borrowing power of members is 
at present fixed at too low a figure (Rs. 2,000), and that the amdttilt 
should be raised to Es. 5,000, although the interests of sittatl 
borrowers should not be neglected. We also think that the present 
limit of operations to a radius of seven miles is too small, in view of 
the fact that we are recommending paid agency, a& the operations of 
a bank covering this area would provide little for admiiiistrative 
expenses. We agree with the limit fixed for loans, which is 50 per 
cent of the value of the land. 

The by-laws of primary land mortgage banks should provide 
that loans should not be recallable so long as the conditions laid down 
are fulfilled by the borrowers : the freedom however of borrowers to 
repay in whole or in part on notice of three to six months should be 

Possible defects in the security of land mortgage banks may arise 
for the following reasons : 

(1) The possibility of mortgages being annulled under the 
provisions of insolvency law : the present position and the precau- 
tions to be taken, if any, should be investigated by competent legal 
authority ; 

(2) the effect of the provisions of the Land Improvement 
Loans Act (section 7) and of the Agricultural Loans Act : care 
should be taken that subsequent loans made by Government do not 
take priority over earlier loans given by land mortgage banks, and 
such amendments, if any, as are found desirable should be made in 
the law. 

The desirability of amending the provisions of the Transfer of 
Property Act, so as to confer upon land mortgage banks the power 
of sale without resort to courts, and of foreclosure, was suggested by 
some witnesses. We gave careful consideration to this suggestion, 
and are not in favour of giving the power of foreclosure. We are 
of opinion however that the power of sale is necessary, if debentures 
are to be popular and marketable. Land mortgage banks are being 
started to rescue the ryot from the money-lender : this object will be 
frustrated if banks are handicapped in their operations by delay and 
difficulty in suits and execution proceedings to recover mortgage 
debts. Kules should however be made for the issue of due notice of 
the intention to exercise the power of sale, for due publicity of all 
proceedings connected with the proclamation and conduct of the sale> 
and for the postponement of sale when the highest bid for the pro- 
perty is not adequate. We further recommend that the sale should 
be conducted through the agency of the Eegiistrar, or an officer 
authorized by him, or such other officer as Government may prescribe. 

We consider that the dividend of primary land mortgage banks 
should not exceed 9 per cent, and that every effort should be 
made to build up adequate reserve funds. 

General. It is desirable to pass a separate legal enactment 
dealing with land mortgage banks, as they differ materially from 
co-operative credit organizations : if the transactions of such banks 
assume large proportions this will undoubtedly be necessary. 

If our proposals are adopted, we feel sure that large funds of 
Indian insurance companies will be invested in the debentures of the 
central land mortgage bank. We understand that these companies 
suffer from a lack of suitable mortgage investments, which form a 
large portion of the investments of insurance companies in England. 
We consider that Government should take all possible steps to assist 
in this direction. 


48. Deofficialization. A few remarks are necessary on the 
question whether the movement should be more completely cc de- 
officialized " than is the case at present : it excites much interest 
in some quarters. 

The point was specifically referred to in our questionnaire. 
Most witnesses replied to the question in the affirmative, but added 
the words u not at present." So far as credit work is concerned, 
the Registrar has at present, as we have already shown, hardly any 
staff to discharge other than his statutory duties of registration, 
audit, liquidation, and the like : indeed he finds considerable diffi- 
culty in doing so. As to non-credit work, practically no witnesses 
asked that it should be handed over completely to non-officials. 

We agree that the ideal to be aimed at is for Government, 
Subject to the due execution of their statutory duties (of which they 
cannot divest themselves), to permit the control of the co-operative 
movement to devolve on non-officials. But the time for putting the 
ideal completely into practice has not yet come. 

A withdrawal from supervision on the part of Government 
took place in 1925-^6, before adequate provision has been made for 
non-official agencies to take over the work. This has, we consider, 
been responsible for much of the confusion which exists at present 
in the movement. 

We consider that the Eegistrar should, not less than onoe a 
year, arrange periodical conferences to be attended by selected 
officials of the department and by non-officials interested in the 
working of the co-operative bodies, for the discussion of important 
matters connected with the movement. This practice was in vogue 
formerly, and may well, we consider, be revived. Such conferences 
would serve the twofold purpose of disseminating correct ideas 
upon co-operative affairs among officials and non-officials, and also 
of keeping the Registrar in touch with non-official opinion upon 
co-operative problems of the moment. No important change in 
policy should be embarked on by the Registrar without prior con- 
sultation with non-officials, such as the board of management of the 

44. Supervision and inspection. We have given a great deal of 
consideration to the very important problems involved in super- 
vision and inspection. An account of the development of these 
functions and of the agencies entrusted with them is given in 
Chapter II. We have arrived at the conclusion that failure to 


distinguish inspection from supervision, and the rights and responsi- 
bilities involved in this connection, have been largely responsible 
for the friction, amounting in some cases to ill-feeling, which has 
been gradually growing between different co-operative organizations 
in certain districts. 

Inspection involves an enquiry into the financial status of a 
society. This is obviously within the rights of the financing 
central banks : we go further, and place it amongst the banks' 

Supervision involves constant administrative assistance in 
routine work, advice on financial matters, and general guidance, 
both from the business and the co-operative aspects. Unions formed 
and controlled by the societies themselves provide the ideal organi- 
zations for this purpose. 

We now deal more particularly with each of these two 

Inspection. Central banks should be provided with audit 
reports and with reports from the unions. ID our paragraph on 
audit we recommend that the former be supplied free of charge. 
If there is anything needing enquiry in these reports, or if for any 
reason whatever the bank desires to do so, it should make its own 
detailed enquiry into a society's affairs, either by one of its 
directors or by its own paid inspector. It should then take such 
steps as it desires to safeguard its financial interests. In the first 
instance this should be done through the union or federation, but, 
if the necessary action is not undertaken by these bodies, the bank 
should address the Kegistrar in the matter, who should either em- 
power the bank to take the necessary steps itself, or act in such 
way as he thinks fit. 

Supervision* In some provinces this function is performed by 
the banks but we do not consider this to be the ideal arrangement* 

The evidence we received, including that from most of the banks 
themselves, was strongly in favour of vesting the duty in unions, 
as at present. A very large number of unions are not now func- 
tioning efficiently, but we consider this is largely a question of 
funds, regarding which we make proposals later. We have been 
impressed by the fact that a large number of very useful rural 
co-operators are not at present in the unions : we recommend that a 
system of co-option should be introduced and encouraged in every 
possible way. 

The responsibilities of unions should include the following : 

(1) to check all cash book, ledger etc. entries, verify 
vouchers) and check interest calculations ; 


(2) to ascertain that loans are granted for proper purposes and 

on adequate security, and are paid to the proper parties : 
and that the time for repayment is fixed with reference 
to the ability and convenience of the borrower; 

(3) to examine repayments to see that there are no book 

adjustments ; 

(4) to see that extensions are given when necessary, and only 

when necessary ; 

(5) to see that panchayatdars do not take advantage of their 

position by benaini loans or otherwise ; 

(6) to see that general body meetings are duly held ; 

(7) to see that office-bearers and members understand their 

rights and responsibilities, and take a proper interest in 
their society ; 

(8) to rectify any irregularities brought to light in the audit 

reports ; and 

(9) to prepare the statistical returns, if necessary. 

The supervisors employed by unions are in a large number of 
cases inefficient. The salary offered is usually small, and there is 
little security of tenure : the position must therefore be made more 
attractive if better men are to be obtained. We are proposing the 
strengthening and better distribution of supervision funds to enable 
the payment of higher salaries, and also the formation of district 
cadres of supervisors to provide greater security of tenure. The 
latter course will also meet a difficulty on which stress has been laid 
by most witnesses, namely the adequate supervision of the societies 
to which office-bearers of unions belong : it is for many reasons 
unwise that this should be undertaken by supervisors, the control of 
whom is vested in such office-bearers. Members of governing bodies 
of unions should of course themselves frequently visit affiliated 
societies in addition to the supervisors. A report of each society 
should be prepared at least once a year by the union, and copies for- 
warded to the central bank and the Deputy Registrar. As stated in 
our paragraph on audit, many of the questions contained in the 
present audit report more properly pertain to supervision, and may 
be embodied in the supervison report, which should be utilized by the 
audit staff in their preliminary audits. 

federations. As stated in Chapter II, federations of unions have 
been formed, but in them also shortage of funds has in many cases 
prevented much work being done. Where central banks are not 
represented on federations, we consider that they should be given 
adequate representation on both the general body and the board of 
management. Some of us desire to go further, and to lay down a 


definite percentage of 33| per cent of the seats on these bodies 
which should be allotted to banks. Most of us however think it 
undesirable to do so ; so greatly do the circumstances of each district 
vary in this matter. But we all agree in the opinion that, in decid- 
ing what representation should be given on federations to banks, the 
important duties we propose to entrust to the former bodies should 
be borne in mind, In the satisfactory discharge of these duties 
considerable assistance would be derived from individual shareholders 
of many central banks. 

The responsibilities of federations should include the exercise 
of general supervision over the work of unions and union super- 
visors, with special attention to the societies of the office-bearers of 
unions. For these purposes federations should employ an adequate 
staff working directly under them. All supervisors should be on a 
district cadre, and their entertainment, transfer, and dismissal should 
vest in the federations : each union should, however, exercise general 
control over the work of the supervisor in its area. 

We consider that federations and unions should be definitely 
responsible for co-operative propaganda in the villages : the responsi- 
bility for the organization of new societies should also be laid on 

We also recommend that federations should have more defixite 
responsibility in the co-operative education of non-official workers: 
we deal with this in a later paragraph. 

Supervision fund. We recommend that 

(1) the supervision fund collected in each district should be 
centralized for each district area ; 

(2) the primary societies should pay one-half per cent, and the 
central bank another one -half per cent, on their lending transactions, 
and not on interest actually collected, The central bank may make 
any further contribution for supervision as it may of its own accord 
decide ; 

(3) the central bank should collect the contribution of the 
societies by adding to its rate of interest the one-half per cent, and 
appropriating the payment made by the societies in the first instance 
towards the supervision fund. In effect, our proposal amounts to 
making the supervisory contribution a first charge on the revenues 
of the societies and the central banks ; 

(4) the central bank should make over the fund thus collected 
to the district federation, or, where there is no district federation, to 
such nou-official agency or agencies as the Eegistrar may prescribe. 
The district federation or agency to which the fund is entrusted 
should contribute from it to uniojis according to their needs and 


requirements, provided that each union should receive not less than 
the amount collected from the societies in its area ; 

(5) in the case of weaker districts, when the supervision fund 
collected is not adequate to meet the requirements of supervision in 
the district, we consider that supervision ought not to be starved, 
and that Government should make such contribution as is necessary 
to make up the deficit. 

We considered a suggestion for centralized supervision fund for 
the Presidency collected in all districts, and came to the conclusion 
that, although it has its advantages, it is impracticable at present. 
If co-operators realize its advantages, they may work up. to that 
ideal in course of time. 

45. Government staff. We consider that the Registrar should hold 
office for at least five years : frequent changes in that most import- 
ant post are most undesirable. When a new officer is to be appoint- 
ed Registrar he should be attached to the department for at 
least six months before taking charge. Some of us consider that 
there are advantages in the appointment as Registrar of an Indian 

We have already detailed the composition of the present staff 
and sketched the history of its growth. >It will be observed that 
its present composition is the result of the reorganization of 
1925, the main features of which were the stoppage of further 
recruitment of Deputy Collectors from the Revenue Depart- 
ment, the grouping of districts under Deputy Hegitrars, and -the 
appointment of officers on a lower scale of pay, Assistant Regis- 
trars, for charge of the work in each district. Witnesses have 
been practically unanimous in condemning these changes, and 
our own examination of the actual working of the department 
in districts leads us to the same conclusion. Assistant Registrars 
have tended to become only heads of an auditing staff, aud 
are so overwhelmed with routine work that they have lost 
effective touch with the primary societies in their districts, while 
the Deputy Registrars, in charge of too large an area for one man 
to administer properly, are also overburdened with work, and are 
quite unable to give, as they are expected, the individual attention 
and advice which is necessary to keep the credit movement on sound 
lines and to develop non credit activities. We consider that the old 
arrangement of having in each district, as district officer, a man of 
the standing of Deputy Registrar should be reverted to. There 
should be one such officer for each district except the Mlgiris and 
Madras. We recommend the abolition of the post of Assistant 
Registrars, and the appointment in each district of an officer, pre- 
ferably of the same status, as a personal assistant to the Deputy 
Registrar, to be in charge, under the general supervision of the 


Deputy Kegistrar, of all routine work and particularly, of audit. 
The Deputy Registrars of Coimbatore and Chingleput should each 
have a second personal assistant for charge of the Nilgiris and 
Madras, the jurisdiction of the Madras personal assistant being not 
necessarily confined to Madras City, which is at present hardly a 
whole-time charge* 

We are not impressed with the personnel of the present Assis- 
tant Eegistrars ; we consider that very few of them are fit for 
promotion as Deputy Registrars. We therefore recommend that, 
while ample opportunity should be given for a flow of promotion of 
good men from the lower ranks of the department, freedom to 
indent upon the Revenue, Agricultural, or any other department, for 
suitable rnenj whether as Deputy Registrars or as personal assistants, 
should be given, and also that the Registrar should be free to make 
appointments by direct recruitment when any specially suitable men 
are available, the age-limit being relaxed where necessary. We 
desire to emphasize tha necessity of appointing only efficient men 
to any posts of whatever grade in the department. 

We discuss the requirements for the inspector grade under tv/o 
beads, audit and administration. 

In G.O. No. 1670, Development, dated November 14th 1923, 
the standard laid down for the audit staff is one audit inspector for 
every JOO societies. It has been found impossible in practice to 
work on this standard, and inspectors intended for supervision have 
been absorbed into audit. In his letter No. 1 367-D-27, dated April 
2nd 1927, the Registrar proposed a scale of one inspector for 60 
societies. We consider that this is the minimum for present require- 
ments, and that, as societies increase in number, provision for 
increased staff on this scale should be made automatically. 

As the inspectoral staff has not been increased to keep pace with 
the increase in primary societies, the Registrar has now no regular 
administrative btaff for credit work, and all duties other than audit 
have to be carried out by the already overburdened audit staff. 
We consider that there should be in each district a definite and 
separate administrative staff, which should on no account be allowed 
to be absorbed, as in the past, in functions of audit. It should con- 
sist of experienced men. It will be concerned with liquidation, 
enquiries under sections 35 and 36 of the Act, and generally with 
such other duties as the Registrar may entrust to it. Liquidation 
has been much neglected in the past, and there are heavy arrears to 
be worked off without further delay. We consider that there should 
be in each district one inspector for this special work alone. For the 
other duties we recommend a scale of two inspectors per district as 
the minimum. We recommend therefore altogether three inspectors 
for duties other than audit and nou-credit per district. 


This standard has indeed already been accepted by Government 
in G.O. Mis. No. 1917, dated November 18th J927. * We consider 
that there will be ample employment for these men until the federa- 
tions and unions have attained a proper degree of efficiency. Till 
then their duties will be to stimulate unions to greater activity, to 
visit the worst societies and try to improve them, to collect over- 
dues when required to do so, and to conduct enquiries under 
sections 35 and 36 of the Act. As we have already shown, very 
many primary societies require immediate attention. Each adminis- 
trative inspector will have in his charge approximately half a 
district, containing on an average seven unions and 250 societies. 

At present the Eegistrar has no reserve of inspectors from which 
to fill vacancies arising through men going on leave or for training. 
We consider that it is essential to constitute a reserve if our pro- 
posals for staff are to be effective. We propose a 10 per cent 
reserve, and calculate that it will amount to approximately 40 men. 
Paiticular care should be taken that these men are kept strictly as 
a leave and training reserve. The Registrar should have full power 
to post them where he thinks necessary. 

We make separate proposals for staff for Madras City, where the 
conditions are peculiar. There are 142 societies in 'the city, of 
which 74 are societies for depressed and labouring classes which 
require intensive supervision. Of the remainder, 41 societies aro 
covered by audit schemes which employ four auditors. We consider 
that the 74 depressed class societies require three administrative 
inspectors, but we think that they and the 27 societies not included 
in audit unions could be audited by one inspector. We therefore 
recommend four inspectors for Madras City. The present sanctioned 
staff is only three. 

We are not satisfied with the stamp of men at present employed 
as supervisors by unions. We consider that model by-law N~o. 18 
for unions should be revised so as to prescribe, as a necessary quali- 
fication, that the candidate shall have passed an examination 
recognized for the purpose by the Registrar. We consider that 
there should be a flow of promotion for exceptional men from 
the supervisor grade to the inspector grade in the department, 
appointments being made by tho Eegistrar. This proposal should 
induce a better type of men than at present to enter the supervisor's 
ranks ; it would secure better prospects for good men, and would be 
an incentive to good work. 

We are impressed by the great amount of work involved in the 
preparation of the large number of returns prescribed by the Local 
Government and the Registrar for purposes of the Administration 
Report. We think that there is scope for a considerable reduction 


in their number and complexity. We also consider that ordinary 
office work could be much reduced and simplified. We suggest that 
a competent officer with the requisite experience should be placed on 
special duty for four months to investigate these returns and make 
proposals, He should investigate the possibility of further powers 
being delegated by the Registrar to the Deputy Registrars, and by. 
the latter to their personal assistants. He should also report as to 
the adequacy or otherwise of the office staff at present employed. 
The Deputy Registrar and his personal assistant in each district 
should have a combined office. 

Peons. The Registrar desires to give one peon to every 
inspector. Some of us consider that, if funds permit, the proposal 
is good, and would save considerable waste of the inspector's time 
that is at present occupied in collecting the office bearers and 
members of societies which it is desired to audit. 

46. Audit and audit unions. Primary societies of unlimited liabi- 
lity. The Act lays down that audit " shall include an examination 
of overdue debts, if any, and a valuation of the assets and liabilities 
of the society." These functions are therefore primarily the duty 
of the auditor, and the staff provided must be sufficient to carry 
them out. It appears that any further duties that are laid on 
the audit staff are optional and must be contingent on the staff 

"We found that in practice the statutory duties above referred to 
have not been carried out in full, as the staff has been employed on 
details not strictly covered by statutory audit. Most of the 
questions in the audit report more properly pertain to supervision, 
and there seem to be no questions the answers to which require 
a full valuation of assets and liabilities and an examination of 
overdue debts. 

"We consider that the statutory audit requires that the auditor 

(1) verify the cash balance. If it is not immediately forth- 

coming, he should make a note to this effect, and record 
any reasons given for the delay. He should also state 
where and how it is kept ; 

(2) verify the genuineness aud regularity of all personal 

security and mortgage bonds, and see they are not 
time-barred. Any defects must be detailed ; 

(3) verify the property statement in a general body meeting, 

and also by independent enquiry from persons uncon- 
nected with the society. He should state in detail the 
steps he has taken and the result of his enquiries ; 

(4) ascertain from the property statement, and otherwise if 

necessary, whether the personal sureties are good for 
their undertakings, and whether the mortgage securities 
are sufficient : any defects should be pointed out and 
commented on ; 

(5) submit a detailed report on all overdue debts, and state 

definitely whether he considers they are good or not : he 
should also state the steps that are being taken to 
recover them ; 

(6) verify the liabilities against the central bank's statements 

and fixed deposit receipts in the hands of depositors, 
etc. (whenever possible), and note any differences with 
his explanations ; 

(1) state whether the by-laws, Registrar's orders etc. are 
being properly observed ; 

(8) state whether all the irregularities brought to light in 

previous audit reports have been rectified ; 

(9) prepare a balance sheet and profit and loss statement ; 

(10) test certain of the supervisor's answers in the supervision 
report (which will be somewhat on the lines of the 
present audit report), note the result, and state if the 
supervision appears efficient or, if not, its defects. 

We emphasize the importance of the verification of the cash 
balance. This should be the auditor's first duty on arrival at a 
society. The audit report should provide for clear and definite 
statements to the effect that the auditor has verified the assets and 
liabilities, and for full and detailed reports of any irregularities. 

The above scheme may involve an increase of work, in that a 
much more detailed examination of the assets and liabilities will be 
necessary than at present, but we consider it necessary that the 
statutory audit should be efficiently done, and an increase in staff 
provided for it if necessary. Some work will however be saved if 
the optional duties more properly pertaining to supervision, which 
have been omitted from the duties detailed above, are excluded or 
lessened. We also think that the present audit staff is not in 
general competent : better trained men would certainly do the 
work more quickly. We return to this point later in our proposals 
for the training of staff. 

Many complaints were made to us by the representatives of 
central banks regarding delay in the receipt of audit reports. An 
increase in staff for this end alone would probably result in many 
auditors being without work between audits. As an alternative we 


suggest : (1) that the societies in each district be divided into two 
groups one to be audited for the year ending June 30th and the 
other for the year ending December 31st. This will necessitate 
unaudited statistics of the second group being included in the 
annual report, but we do not regard this point of importance, as in 
practice many of the present statistics are unaudited : (2) that 
audit be also divided into two parts, preliminary and final. Preli- 
minary audit may include all the duties of the auditor, except the 
preparation of the balance sheet and the pyofit and loss statement. 
In his certificates the auditor may state that ho has verified the 
different items during the year : this would obviate his doing so as 
at June 30th. At the final audit there should be little left to do 
except verification of the balance sheet and profit and loss account. 
But the cash balance is so important that it should be verified at 
both audits. 

Audit operations should, as far as possible, be so conducted that 
societies are visited for preliminary and final audit at intervals of 
about six months. We deprecate however the fixing of too definite 
a time-table, as we think that difficulties arise in practice which must 
result either in such time-table being departed from, or in the audit 
work being unduly hurried. Wo think the present practice 
requires modification in this respect. 

The Act lays on the Eegistrar the responsibility for audit at 
least once a year. We think an annual audit is very advisable, 
but, if the staff available does not permit of an efficient audit 
annually, we feel very strongly that frequency should give place to 

We hesitate to state definitely the staff necessary for the annual 
audit we contemplate, but we consider as we have already said that 
one auditor cannot deal satisfactorily with more than sixty societies 
each year. We think that about 5 per cent of societies should be 
super-audited by the Deputy Registrar or his personal assistant, to 
keep them in touch with societies and to check the work of inspectors. 

We do not think that the time has yet arrived when primary 
societies in this Presidency should pay for any portion of the 
statutory audit. As long as there is any question of the adequacy 
of the funds available for supervision, this matter should not be 
taken up, but, in view of the fact that such payment is made in 
certain other provinces, it may be reconsidered after a suitable 

We think that audit reports of primary societies should in all 
cases be supplied to central banks as well as to supervising unions 
free of cost. Extra carbon copies may be made for this purpose. 


Any other organization or individual should be entitled to make 
copies, or to obtain them on payment of the cost of preparation. 

We consider that for some time to come the audit of primary 
societies of unlimited liability must bo done by the Kegistrar'8 staff, 
and that the formation of audit unions for this purpose will not be 

Limited lialility societies The audit of limited liability societies 
presents different features from that of societies with unlimited 
liability, Central and urban banks are much the most important 
in this class. At present the audit of these banks is divided into 
concurrent and final audit. The former includes the checking of 
each day's transactions, of interest calculations, etc ; in a joint stock 
institution this work is done by a superior staff employed by the 
institution* itself , and many central banks and some urban banks 
have adopted this method and employ their own concurrent auditors. 
The process involves considerable labour, especially in the case of 
large urban banks with numerous loans : in the case of one urban 
bank we found that it would take one man eight months to com- 
plete. As stated in our paragraph on urban banks, tine adoption of 
more up-to date methods of book-keeping will effect a considerable 
saving of time in the concurrent audit, but in any case we consider 
that such audit forms no part of the statutory duty of Government, 
and should not he a burden on the tax-payer. Central and urban 
banks should therefore, we think, pay for their concurrent audit. 
We consider also that these banks should pay for their final audit, 
with the exception of urban banks with a working capital of under 
Rs. 50,000, which may not be in a position to do so. 

The audit of central and urban banks differs materially from 
that of agricultural societies with unlimited liability. It is 
less personal and more technical. We are therefore of opinion 
that a different training is needed for the auditors. We propose 
that a central audit organization be formed to which central and 
urban banks may affiliate themselves. The auditors employed by 
this organization should hold certificates from the local Govern- 
ment, and be approved by the Registrar. The Presidency should 
be divided into suitable sections with an auditor in charge of each, 
any reserve men being posted to assist in the heavier districts or 
placed on work in headquarters. Tho cost should be allocated to 
the affiliated banks in proportion to their transactions. The 
Registrar should at his discretion from time to time also entrust the 
organization with the final audit. He should take appropriate steps 
to satisfy himself that this organization discharges its duties effici- 
ently. We anticipate that this organization will at its inception 
embrace central banks and the larger urban banks, but we think 
that all urban banks should be encouraged to join it as sooa as 


possible, and that the department should make grants to the audit 
organization in respect of any final audits undertaken by it, if such 
audits would otherwise be done free of cost by the department. 

We do not think that small local audit unions can usually 
attract suitable men for the work. 

The form of final (statutory) audit report will of course in all 
cases be subject to the approval of the Eegistrar, and should include 
all the points (with the necessary modifications), mentioned in the 
paragraph dealing with the audit of unlimited liability societies 
which are applicable. Particular attention must be paid to the 
valuation of assets aud liabilities and the examination of overdue 
debts in societies of limited liabilit. 

At present the audit of urban banks is left until tt a t of the 
unlimited liability societies, which are smaller, is completed. We 
think that a prompt audit of limited liability societies is the more 
important, as defects may have more serious results, and delay in 
payment of dividends is often misunderstood. 

The audit of loan and sale and other limited liability societies 
we propose to leave with the department. Each class of society 
presents special features, but we do not think any of them are of 
sufficient importance to deal with here. 

47. Reserve funds. Section 33 of the A.ct deals with reserve 
fund, and, under section 43 of the Act, the Government may make 
rules providing for the formation and maintenance of reserve funds 
and the investment of such funds. The provisions of section 33 and 
of the rules issued under section 43 have resulted in the following 
practice being observed : 

(i) no s unlimited liability society may make a division of 
profits without carrying at least one-half of its net profits, and no 
limited liability society without carrying at least one-fourth of its 
net profits, to reserve fund. 

(ii) reserve funds of primary societies are invested in central 
banks : reserve funds of central banks are generally invested in the 
M.C.U.B., and, to a smaller extent, in Government Paper : the 
reserve fund of the M.C.U.B. is entirely in Government Paper. 

The evidence we received is strongly in favour of continuing 
the practice of investing the reserve funds of primary societies iu 
central banks. Some witnesses however desire that central banks 
should allow interest on the reserve fund deposits at the same rate 
they charge on the loans to primary societies. We think this is 
going too far, but a majority of us is in favour of limiting the rate 
on loans to societies, of amounts equivalent to their reserve fund 
deposits, to ] per cent more than the r^te allowed on 


deposits. The minority however considers that, with the growing 
reserve funds of societies, central banks may not in the future be 
able to afford a reduction in the margin between the borrowing and 
the lending rates on what may prove to be a large portion of their 
funds, especially in view of the increasing supervision and audit 
burden which it visualizes. The minority also considers that a 
large portion of the reserve funds of societies should be held by the 
central banks in a readily realizable form, and can therefore only 
bear a low rate of interest. We are all agreed however that central 
banks and primary societies should be encouraged to invest their 
reserve funds in redeemable Government securities. But in the 
case of primary societies whose reserve funds are relatively large, 
and whose deposits are small and largely based on local influences, 
sudden emergencies of an extreme nature seem improbable, and 
we think that 20 per cent of their working capital in a readily 
realizable form should ordinarily be sufficient, and that, when their 
reserve funds exceed this proportion, any excess may be used by 
the societies in their own business. This would give them a 
tangible object in building up their reserve funds, and we consider 
that these funds serve a very useful purpose in both encouraging 
thrift, and in providing a fund for unforeseen losses and a security 
for borrowings. It may also ultimately permit of a reduction 
in the rate of interest to members. We should prefer that this 
20 per cent should bo invested outside the movement, but, as the 
interest on such investments would be substantially less than the 
interest societies are now receiving, we do not feel justified in 
recommending that such investments should be compulsory. We 
think that every effort should be made to build up these funds, and 
we make recommendations in the paragraphs on primary societies 
and central banks which will assist iii doing so. 

We are of opinion that consumers' and producers' societies, 
which do not accept deposits or grant loans, may invest their whole 
reserve f imds in their own business. In the paragraph on urban 
credit societies we suggest that purely thrift societies be exempted 
from the compulsory maintenance of reserve funds. 

When reserve funds are in the form of Government securities, 
care should be taken that the securities are not used as cover for 

48. Fluid resource. In dealing with this important subject, we 
consider it desirable to deal separately (1) with the standards of 
fluid resources to be maintained and (2) the forms in which they are 
to be maintained. With regard to the standards, our recommend- 
ations are unanimous. But with regard to the form, four of us are 
of one opinion, with which the other three find themselves unable 


to concur. TJtte recommendations relating to the latter are therefore 
of a majority. 

Standards. The Co-operative Societies Act makes no reference 
to the maintenance of fluid resources, that is, to the necessity of 
societies holding a certain proportion of their assets in a liquid form 
to meet the claims made from time to time by depositors. Rule 
VIII-C made under the Act however makes the following 
provision : 

u All societies with limited liability which accept deposits and 
loans shall provide for fluid resource in respect of deposits and loans 
received from individuals and institutions other than co-operative 
societies in such manner and according to suoh standards as may 
from time to time be prescribed by the Government, Where 
however one co-operative society gives a cash credit to another 
co-operative society to serve as a cover for deposits in the latter 
society, the former society shall provide for fluid resource in such 
manner and according to such standards as may, from time to 
time, be prescribed by the Government The Government may 
however empower the Registrar by general or special order to 
relax the standard prescribed for a particular society or for a 
particular class of societies for a specified period." 

No provision appears to be made for unlimited liability societies, 
and the Government orders issued deal only with limited liability 
societies with deposits ot over 20,000 rupees. We think that the 
standard of fluid resource to be maintained by limited liability 
societies with deposits under Rs t 20,000 and by unlimited liability 
societies as a whole, may, for the present, be left to the discretion 
of the Registrar. The question of the necessity of a society holding 
fluid resources in respect of cash credits granted to other co-oper- 
ative institutions, the undrawn portion of which is treated as fluid 
resource by the latter, has been raised. The present rule is that 
not less than 60 per cent of the cash credits sanctioned should be 
held (vide G.O. No. 985, dated July 2nd 1927). 

The fluid resources are now maintained according to the 
standards laid down in G.O. JSo. 1127, dated August 3rd 1920, and 
modified by later Government Orders, on the following scale by the 
central banks : 

(i) Fifty per cent of fixed deposits falling due in the next 

30 days : 

(ii) Fifty per cent of current deposits : 
(iii) Twenty- five per cent of savings deposits. 
It further lays down that a minimum notice of one month should 
be required for withdrawal of savings deposits, G.O. No. 200 of 
February 2nd 1924 and G,0. No. 1203 of July 2nd 1924 however 


permit withdrawals up to Fs. 200 a week. By G.O. No. 623 of 
April 15th 1922, the M.C.U.B. was permitted to maintain 40 
per cent only in the case of current accounts. The other proportions 
were unchanged. 

With regard to urban banks, the standard of fluid resources was 
fixed in G.O. No. 501, dated April 10th 192B at : 

(1) twenty-five per cent of fixed deposits falling due in the 

next 30 days ; 

(2) twenty-five per cent of current deposits ; 

(3) twenty-five per cent of savings deposits; 
and the Eegistrar ia given power to relax the standard. 

In connection with the modification of the scales of fluid 
resources in general Government placed on record that the 
Registrar and his subordinates must realize the responsibility for 
more frequent scrutiny of the banks' operations. 

We observe that the fixing of fluid resource on the basis of fixed 
deposits falling due in the next 30 days produces very violent 
fluctuations in the amount required : nor does the practice appear to 
have been adopted elsewhere. Further, we note the amount to be 
maintained is lower than that in Bengal, Bombay, or the Punjab : 
these are the only provinces for which we have figures. We 
recommend that in future the proportions fixed should be 30 per 
cent of fixed deposits falling duo in the next six months or 50 per 
cent of those falling due in the next 30 days, whichever is from 
time to time the higher; this will prevent the present violent 
fluctuations. The deposits of public bodies etc., however, form a 
special problem with which we deal in a separate paragraph. We 
also recommend that the due dates of large deposits should as far as 
possible synchronise with the periods when repayments from the 
sale of harvests may be expected, and that large deposits should, 
wherever possible, be split into smaller sums, the due dates of 
which should be spread over a suitable number of months or years. 
An offer of different rates of interest will facilitate this object. 

With regard to current accounts, we tbink that central banks 
should exercise more care than they do at present. We deal with 
this in the paragraph relating to central banks. Provided the 
precautions recommended are taken, we think the proportion of 
fluid resource may remain at 50 per cent. 

We recommend no change in the case of savings bank accounts, 
but we emphasise the fact that such accounts must be confined to 
savings and not utilized as current accounts. 

The problem of urban banks needs special consideration. On 
principle we find it difficult to appreciate the reasons for the adop- 
tion of a lower scale of fluid resource in their case than in others. 


The fact that urban banks are unable to obtain cash credits from 
central banks to meet emergencies^ and are prohibited from resorting 
to other banks for accommodation, seems to us to provide an argu- 
ment for the necessity for at least an equal, if not a higher, standard. 
We gather from the administration reports of the department that 
its policy is to discourage the tendency of limited liability credit 
societies to rely upon central banks for financial accommodation, 
and to insist on these societies looking to local sources for the bulk 
of the money which they require in addition to their owned capital, 
that is, paid-up share capital and reserve fund. There is force in 
this view, but, if they are discouraged from borrowing from central 
banks, the latter can scarcely be expected to oblige them with cash 

In dealing with urban banks we have recommended that large 
fixed deposits should be split into smaller deposits, the maturity of 
which should synchronise as far as possible with the due dates of 
loans. The instalments of loans are often due monthly, and in many 
instances it is probable that the rotation of Joans is quicker than is 
the case with central banks : in several cases however there is a 
very large proportion of overdues. We have no alternative but to 
recommend that every effort should be made to work up to a 
standard of fluid resource on the same scale as that we have recom- 
mended for central banks, although we realize the difficulties in 
doing so. We also think that the Registrar should endeavour to 
help urban banks by obtaining cash credit facilities for them on the 
collateral security of their members' promissory notes. In the 
paragraph on those banks we refer to the unbusinesslike manner 
in which the many urban banks conduct their current account 
business, and recommend that current accounts be only opened for 
members. Nevertheless, we consider that the same fluid resource 
as in the case of central banks should be maintained in respect of 
these operations to ensure the safety of depositors' claims ; the relation 
of members to an urban bank is of quite a different nature to that 
of members to an unlimited liability {society, 

Form of fluid resource. G.O. No. 1427, dated August 3rd 1920, 
already referred to, laid down that fluid resource should denote the 
cash balance on hand with the bank plus undrawn ca^h credit with 
the Bank of Madras plus 80 per cent of the market value (as noted 
in the daily papers) of (Government promissory notes. The 
Maclagan Committee accepted as fluid resource the undrawn portion 
of a reserve cash credit with the Provincial Co-operative Bank or the 
Presidency Bank, provided that there existed a moral certainty 
that such bank will not withdraw the accommodation without ade- 
quate notice. Mr. Hemingway recommended to the Government the 
inclusion of undi*awn portion of cash credit as part of fluid resource 


in his letter No. Gl. 8381, dated July 18th 1919. He based his 
recommendation on statements made by Sir Bernard Hunter that he 
considered the position of co-operative banks to be analagous to that 
of his own branches, and that implicit confidence might be placed 
in the Bank of Madras not to withdraw cash credit in such a way 
as to endanger the co-opeiative banks. Sir Bernard Hunter's letter 
may not be so free from reservations as to justify unlimited reliance 
on the then Madras Bank not to withdraw the amount in a crisis, 
but Sir Norman Murray's recommendations strengthened Sir Ber- 
nard's proposals, and led to the definite inclusion of the Imperial 
Bank's overdraft as part of the fluid resource : in fact the fluid 
resource was defined in consultation with him. These details 
are obtained from G.O. No. 1427, Revenue (Special), dated August 
3rd 1920, in which the correspondence with the Imperial Bank 
is printed. The reasons that led the Maelagan Committee to 
recognize undrawn cash credits with the Provincial and Presidency 
Banks as parts of fluid resource were mainly two-fold, firstly, 
that the margins available for income are too low to permit large 
portions of the capital of co-operative banks being invested on un- 
remunerative terms, and that, instead of these margins expanding, 
there would be a tendency lor them to contract with the develop- 
ment of the movement. Secondly, that the rigidity of the co-opera- 
tive finance arising from the nature of the securities on which 
advances were made by the co-operative banks is such as not to 
permit of those securities being readily accepted and easily converted 
into cash in the commercial banking world. If undrawn cash 
credit with the Imperial Bank is excluded from fluid resource, and 
central banks are compelled to maintain fluid resources only in cash 
and redeemable Government securities, it will appreciably diminish 
the profits of the central banks. The cost of maintaining fluid 
resource only in cash and Government securities will have to be 
ultimately borne by the primary credit societies, who form the bulk 
of shareholders in the central banks. This burden will fall on them, 
either in the shape of diminution of the dividends which they now 
derive, or by way of loading the rate of interest at which they now 
borrow from the central tanks. In either case, the available profits 
of primary societies, which are the lowest as compared with those in 
other provinces of India, will be still further reduced. This will 
be a serious menace to the movement. The establishment of the 
Reserve Bank, in the scheme of which there is a definite provision 
for giving rediscounting facilities to agricultural paper counter- 
signed by co-operative banks, will tend to remove some of the 
present inelasticity of co-operative finance, and the demand promis- 
sory notes of societies and central banks would become more 
acceptable as cover for financial accommodation from the commer- 
cial banks. 

The Maclagan Committee recommended that the undrawn cash 
credit with tho Provincial Co-operative Bank may be included as a 
part of the fluid resource. The central banks, which really own the 
provincial bank, have more than a moral claim to the enjoyment of 
facilities for cash credit for the purpose from that bank. In spite 
of this fact it is curious to note that the cash credits which are now 
allowed by the M.C.U.B. to the central banks (amounting to 7 lakhs) 
are not counted as fluid resource under the Government orders 
and departmental circulars. If the central banks agree among them- 
selves, we consider it safe to concentrate the cash credits which serve 
as fluid resources of central banks in the M.C.U.B., which in its turn 
secures similar facilities from the Imperial Bank. We understand 
that this arrangement will not give rise to any difficulty in practice 
in the matter of central banks operating on the cash credits towards 
their fluid resource requirements, as the Imperial Bank, we are told, 
has no objection to permitting the central banks to draw on their 
own cheques by previous suitable arrangement. With reference to 
urban banks, the Eegistrar points out in the note circulated by him 
to the Committee, and already referred to, that their fluid resources 
definitely include the overdraft allowed by a central bank, and 
proceeds to say that " It is only reasonable now that a central bank 
must reserve cover for those overdrafts to the extent of 50 per cent 
in so far as the latter are intended to cover deposits, that the central 
banks should include a cash credit from the M.C.U.B. in their fluid 
resource. This was recommended to the Government, but the point 
was omitted in the Government Order issued and the matter will 
be taken up again." The undrawn cash credit of central banks 
with the M.C.U.B. should therefore, we recommend, be included in 
their fluid resources. 

But, whether the central banks enjoy the cash credit individually 
in the Imperial Bank or whether they concentrate it in the 
M.C.U.B., the success of the scheme will ultimately depend upon 
the continuance of the facility to the movement as a whole by the 
Imperial Bank of the grant of cash credit against the demand 
promissory notes of societies and central barks, and the freedom 
to utilize a portion of such cash credit for fluid resource. 

The Imperial Bank rendered valuable services in the past to the 
co-operative movement, and we understand that it is willing, not 
only to continue the facilities which it now gives to the co-operative 
banks, but even to afford additional facilities if necessity arises. 
The Imperial Bank at present allows cash credit to the co-operative 
banks in this province for two purposes : (1) for fluid resources to 
cover deposits by individuals and institutions other than co-opera- 
tive societies, and (2) for utilization for short term loans. Central 

banks have been asked to divide the cash credit allowed to them by 
the Imperial Bank into two parts, setting aside a definite amount 
for fluid resource. . The Registrar in a note circulated by him to the 
Committee points out that several of the central banks have done so, 
but in their quarterly statements they take credit for this total 
undrawn cash credit. He further states u It is not unreasonable, 
because in point of fact and so far as the Imperial Bank is concerned 
the whole undrawn overdraft is actually available for the purpose 
and this ear-marking of a part of the overdraft only amounts to a 
provision that not more than a certain part will be used for short- 
term loans. 55 

The position of the fluid resources in the 30 district central 
banks and the Christian Central Bank, as on September 30th 1927 
is shown in the following statement : 

Amount of fluid resource which the 
30 district central banks \vere 
requested tomiintain. 

Actual fluid resource maintained. 

flank over- 









30 central banks . . 






This statement shows that in actual practice the central banks 
rely, not only on the undrawn cash credit, but also to some extent on 
the cash with them, and to a small extent on Government securities 
also. The conditions on which the Imperial Bank allows cash 
credit to the central banks in this province are as follows : 

(i ) interest is payable quarterly at a flat rate of 6- per cent 
per annum, calculated on daily debtor balances ; 

(ii) the cash credit should be utilized only as fluid resource to 
cover deposits, or as short-term loans repayable within a year ; 

(iii) as a general rule, the cash credit will not be allowed to 
an amount exceeding the owned capital of the central bank 
concerned ; 

(ivj the central bank concerned should, in addition to the 
promissory note executed by it, furnish collateral securities in the 
shape of promissory notes of uiilimitrd liability credit societies in 
the case of district central banks, and promissory notes of district 
central banke in the case of the M.C.U.B. ; 

(v) the actual value of the collateral securities furnished 
should be iu excess of the cash credit sanctioned by at least 3 3 1 per 

(vi) each central bank should forward to the Imperial Bank 
every quarter a list of promissory notes lodged as collateral securi- 
ties, showing the amount outstanding on each promissory note 
together with a certificate to the effect that the promissory notes 
lodged as collateral securities aro in order. The list and the certifi- 
cate are verified every half-year by the Deputy Registrar concerned, 
and the certificate of each verification is forwarded to the Imperial 
Bank through the Registrar ; 

(vii) such of the promissory notes lodged as collateral securi- 
ties as have become three years old, or are discharged, should be 
substituted by fresh promissory notes. 

These conditions are sufficient guarantee against ordinary risks. 
The central banks fully realize that the continuance of the facilities 
of cash credit depends on their pursuing sound business principles. 
The argument that in times of financial stringency the facilities 
may be withdrawn by the Imperial Bank may be easily over- 
emphasized. It is to enable the co-operative financial organizations 
to weather possible financial storms that the co-operative central 
and provincial banks are sought to be linked up for financial 
accommodation with the Imperial Bank with its enormous resources 
and Government backing. To urge the very contingency of financial 
stringency, which is thus sought to be provided against, as an 
argument against the continuance of the provision is to destroy 
the very foundation of the wise and practical solution out of the 
difficulty found by the Maclagan Committee in 1915, and by 
Government in 1920 with the concurrence of the Imperial Bank. 
Co-operative banks, it was recognized, could not be expected to be 
self-contained and self-supporting in the matter of providing fluid 
resource to the extent necessary for safety and stability without 
the help of the Imperial Bank and the Provincial Bank. The 
Maclagan Committee's caution that too much reliance should not 
be placed in this matter on the help of commercial banks is, in our 
opinion, not to be applied to the Imperial Bank. The Imperial 
Bank should be considered for this purpose, not merely as a 
commercial back, but as the financial agent to the^Government in 
regard to the co-operative movement in this country. It has 
undoubtedly acted in that spirit in the past, and we see no reason 
why it should not do so in the future, even in its capacity as the 
agent of the Reserve Bank. 

The facility of cash credit is not confined to this province alone. 
It is enjoyed by the co-operative banks in almost all the provinces 


in varying degrees. The following table will show the facilities 
enjoyed by the co-operative banks in the several proviaces : 

Limit of credit of co-operative bodies 

Against the 


Against Govern- 
ment and other 

demand pro- 
misHory notes 


securities, etc, 

and promissory 
notes of rural 

on-dit societies. 












Bihar and Orissa 







Central Provinces 








21,50,000 * 







Total . . 

1,44,30,200 , 1,02,52,000 


*2V.#.-This figure was Rs. 11,50,000 till December 1927, when the M.O.U.B. obtained 
an increase in its limit of credit egairst Uovernment securities from 10 lakhs to 20 lakhs. 

We presume that in almost all the provinces portions of the 
cash credits shown above are being used as part of fluid resource, 
and the balance for short-term finance. 

The conclusion therefore at which we have arrived by a majo- 
rity is that the existing arrangements with regard to fluid resources 
are sound, and that a change in them is not called for. We however 
recommend that, in order to make the existing arrangements 
absolutely safe, steps be taken to ensure that the continuance of 
these facilities is made obligatory on the Imperial Bank by some 
statutory provision, contractual guarantee, or other suitable method. 

49. Deposits ly local "bodies, etc. Government have permitted 
local bodies, etc., to deposit their funds in central banks approved 
by the Eegistrar. These funds are in essence trust funds, and, in 
permitting their deposit in banks for which it holds statutory 
responsibility for audit, it may be argued that Government accept 
responsibility for their safety. A great responsibility therefore 
appears to rest on the Registrar. It has to be recognized that, once 
he has allowed a bank to accept these funds, the removal of such 
permission would in all probability result in a withdrawal of other 
ideposits also, and thus cause the financial ruin of the institution : 
his responsibility is however such that it is his duty to act, if for 
any reason whatever he thinks it advisable, 



In practice all central banks have been admitted to the 
approved list. In some banks the total of such deposits exceeds 
those from other sources. In many cases the banks have been 
unable to utilize them, and have thus become burdened with an 
interest- bearing surplus : we found at least one instance where a 
central bank had redeposited a large sum for a fixed period with a 
commercial bank at an unprofitable rate of interest. In other cases 
banks have only been able to utilize the money by investing what 
are essentially short term deposits for long periods. 

The nature of these deposits differs. In some cases they will 
probably not be required for many years and until after due notice : 
in others large withdrawals may be made at short notice. Special 
care is necessary in -maintaining the requisite fluid resource for the 
latter: in some cases this care is not being exercised, and we have 
observed at least two instances of extreme laxity in the matter, 

With regard to current accounts, an arrangement might be 
arrived at whereby notice of large withdrawals is given. Failing 
this, in view of the fact that in some banks almost all the current 
account balance is in the form of deposits from local bodies etc., a 
higher standard of fluid resource is absolutely necessary. Three 
per cent interest on the daily balances will in such circumstances be 
too high : in any case interest should be calculated on the minimum 
monthly balance, as is the case with commercial banks. 

With regard to fixed deposits, every effort should be made to 
arrange that deposits for more than Rs. 10,000 are repayable when 
repayments are ordinarily expected fi'om societies. A similar 
practice exists in Germany. A differential rate of interest favour- 
ing such deposits will assist in attaining this end. 

In at least one instance the by-laws of a central bank provide 
that such deposits shall bo repayable, if desired by the depositors, 
before the due dates. This is very dangerous and requires amend- 
ment. Effect is being given to this by-law : but we can find no 
record of the Registrar's sanction. 

We are of opinion that fixed deposits of Es. 10,000 and over 
should be accepted from public bodies only on the condition that 
six months 7 notice of withdrawal be given by the depositors. When 
such notice is received, the bank should immediately advise the 
Registrar of the fact, and of the steps it is taking to meet the 
payment. Three months before the due date for payment a second 
report on the matter should be submitted to the Registrar. At 
least 66 per cent of the amount required, in addition to the fluid 
resource required for other deposits, should be available two months 
before repayment is due, and this fact should be intimated to the 

*The present system, under which the amount of the deposits of 
public bodies etc., with a bank is based on the loan repayments in 
the previous year, is unworkable in practice, as a bank cannot 
reasonably force depositors to receive back a portion of their deposits 
when loan repayments have fallen. We consider that the basis for 
the calculation should be the bank's capital and reserve fund, and 
that such deposits should not exceed four times this amount, with 
the proviso that this limit may be exceeded in special cases after the 
Registrar's sanction has been obtained : before giving such sanction 
the Registrar should take into account the nature of the deposits 

50. Arbitration^ liquidation and execution. Complaints were 
made to us as to delays incurred by arbitrators in making awards. 
We consider that suitable honorary agency wherever available, 
particularly in retired Government servants, should be utilized for 
the purpose. A panel of suitable gentlemen should be maintained 
by the J)eputy Registrar. Honorary arbitrators should be given a 
small staff for clerical and process work, and travelling allowance 
for any journeys they make. 

We learned during our enquiry that some societies exist in 
every district whose present condition can only be described as 
hopeless. Some societies have done no business, either in the way 
of collecting old or making new loans, for years. Some societies 
borrowed monies once after registration from the central bank, 
distributed them as loans to their members, and did nothing else : 
yet no steps were taken either to revive or liquidate them. But 
when societies are dormant the more well-to-do members may leave 
them, either because they can get no loans from them, or because 
they wish to escape the unlimited liability attaching to member- 
ship. The security of the central banks which lent money to these 
societies on the basis of the property statement submitted to them 
at the time the loan was granted is thus reduced, and it is possible 
that the banks may even lose money eventually in such cases. 
When societies do not collect their dues in time debtors may 
alienate their property, and thus become unable to repay their 
debts : iu any case such alienations reduce the security of central 
banks. Further, when societies have not been working for some 
time, there is risk of the debts due to them becoming time- barred. 
We therefore consider it necessary to emphasize the importance 
and urgency of paying immediate attention to dormant societies, 
and either reviving or liquidating them without delay. 

Liquidation is now left to Assistant Registrars, who have 
ample work otherwise and who are not specially qualified for this 
work, We consider that the Registrar should have power to 
entrust the work of liquidation to non-official gentlemen choseu 

from among the directors of central banks, from among the 
members of the bar practising near the village where liquidation 
has to be undertaken, or from retired officials : always on the 
assumption that competent men are available. The commission of 
about 5 per cent on amounts realized, which is admissable under the 
rules, would be sufficient remuneration. When legal difficulties 
arise the Government Pleader should be consulted. But we 
consider that the Deputy Registrar (under our proposals) should 
still have the responsibility for keeping a watch over the state of 
liquidation work ia his jurisdiction, and see that it is not allowed to 
fall into arrears. 

We draw attention to the fact that, though the by-laws of 
societies contain restrictions against withdrawal of members, these 
remain a dead letter, as the share capital of members is often 
adjusted towards their overdues, and when this has been done 
membership ceases. 

There are defects in the law and rules relating to liquidation. 
We draw special attention to the following, in order that they may 
be rectified by suitable legislation or rules : 

(a) as the law stands at present, the Registrar has no power 
to give directions to the liquidator after his appointment. The 
Registrar should be enabled to give him directions from time to 
time ; 

(6) in section 42 (2) (b) of the Act, the liquidator has power 
to determine the contribution to be made by members and past 
members. This means that he has to decide once for all the contri- 
butions to be made by all the members. To enable him to enforce 
contribution equitably from all the members, he should be enabled 
to determine from time to time the contributions to be made, so 
that he may work out an equitable contributory arrangement by 
different stages : 

(c) in section 42 (2) (b) the estate of a deceased member is 
not specifically mentioned as a contributory. It should be included. 
The heirs and legal representatives, including executors and adminis- 
trators, should bear the liability : 

(d) in section 24 the estate of a deceased member is declared 
to be liable for the liabilities of the society for a period of one year. 
We consider the period too short. It should be extended to at least 
two years, as in the case of past members, the necessary legislation 
being undertaken for the purpose : 

(e) the liquidator has at present no power to refer any mat- 
ters in dispute to arbitration, lie should be given that power, 
subject to the Registrar's sanction in each case : 


(/) there is no provision for the disposal of books after 
liquidation. Provision tor this should be made : 

(ff) no ledger is kept in the Assistant Registrar's office, and 
there is consequently no easy method of discovering what action 
has been taken in respect of each member of a society under liquida- 
tion. To ascertain this, the whole file, often very voluminous, has 
to be gone through. There should we consider bo a ledger showing 
the demand against each member and the collections made from 
time to time : 

(A) the necessity for passing both a preliminary and a final 
decree in the case of decrees on mortgage loans should be done away 
with, and the decree given in the first instance should be treated as 
the final " executable " decree : 

(t) sections 50 and 51 of the Bombay Act, and the Burma 
Co-operative Act VI of 1927, deal with liquidation. When a 
separate Co-operative Act for Madras is passed, the opportunity 
should be taken to incorporate similar provisions in it. 

We received many complaints as to delays in execution. We 
recommend that the present limit of forty cases per taluk per year 
which may be sent for execution to the Revenue Department be 
removed, and that tahsildars may be allowed to employ subordi- 
nates, such as revenue inspectors, on the work. If this be not 
possible,' we recommend that the honorary arbitrators, already 
mentioned, be allowed to execute their own decrees, Village 
panehayat courts should also be given power to execute decrees for 
sums of Rs. 50 and under. Under Act I of 1889 these courts are 
only permitted to execute decrees which they themselves have 
passed ; the necessary amendment should be made in that Act. 

A special staff should be entertained for execution, to work 
either under the agencies mentioned above or under the Registrar, 
Its cost should be recovered from the defaulters, the Act being, if 
necessary, amended to enable this to be done : for this purpose a 
scale of execution fees should be drawn up, 

It should be remembered that the production of encumbrance 
certificates should be enforced only when immovable properties are 
to be brought to sale, and not in earlier stages of execution proceed- 

Officers not below the rank of inspector specially authorized by 
the Registrar in this behalf may, on the application of tho society 
concerned, be empowered to recover overdue instalments of loans by 
the distraint and sale of the defaulter's movable property, as if they 
were arrears of land revenue. The power should not be extended to 
the arrest of the defaulter nor to the sale of his immovable 
property. The existence of this power will itself stimulate prompt 


6l. Education and training. We have been very much impressed 
by the lack of knowledge of even the commonplaces of co-operation 
Bhown, not only by the members of primary societies, but also by 
office-bearers, and even by the staff employed by the various non- 
official agencies. We believe that many of the unsatisfactory 
features in the present condition of the movement are directly 
attributable to this ignorance. Even the official staff is, we consi- 
der, in many respects insufficiently trained for the proper discharge 
of its duties. Too much impoitance cannot be attached to the 
necessity for adequate education in co-operative principles of all 
concerned in the movement. 

Dealing first with the education of non-officials in co-operative 
principles, we consider that this should be the duty of a central 
non-official body working through the federations and co-ordinating 
their activities. . "We consider that the P.C.U., if reorganized (as we 
understand is proposed) on a larger basis, so as to represent federa- 
tions and central banks, would be a suitable body to undertake this 
work. Government should give it a grant-in-aid in the proportion 
of Us. 3 to every He. 1 raised by the P.C.U. by subscriptions and 
contributions, until the grant made by Government reaches 
Rs. 20,000, when the position should be reconsidered. The present 
income of the P. O.U. from contributions is Rs. 4,600. We recom- 
mend in addition that Government should give a grant of Rs. 1,000 
per annum to each federation affiliated to the P.C.U., to be spent on 
education and training. The grant to the P.C.TJ. should be condi- 
tional on its giving representation on its governing body to each 
federation. Each course of instruction, whether arranged for by 
the P.C.TL or federations, and the list of instructors, should be 
determined in consultation with the Registrar. 

The function of the P.C.U. would be the organization of classes 
both in Madras and in the districts, through the federations, for the 
training of supervisors and of private individuals, in the latter case 
at their own cost. There should be an examination at the end of 
the course, and in the appointment of supervisors preference should 
be given to men who have passed the examination* The course of 
training should be approved by the Registrar. Other functions of 
the P.C.U. will be to publish, as at present, a monthly co-operative 
magazine, to organize periodical conferences, and to arrange for 
adequate propaganda by means of lectures and classes, aided possibly 
by the magic lantern and the cinematograph, working whenever 
possible through the federations. 

The function of federations in respect of education would be to 
hold classes at convenient centres to give a simple course of training 
for office-bearers, panchayatdars, and members of primary societies. 


There is already a demand for separate organizations for separate 
language areas. One already exists in an undesr eloped form in the 
Andhra Sahakara Sammelanam in the Telugu country. "We think 
that such bodies should, at any rate for the present, be co-ordinated 
to the P.C.U., in order to secure uniformity, and to avoid over- 
lapping : their most useful function would be the publication of 
magazines, pamphlets and other literature,, and education and 
propaganda generally in the language of the areas. The eventual 
ideal to be aimed at in this connexion is the establishment of 
separate linguistic unions for each well-marked language area : but 
this ideal will not be attained at once. 

We suggest that, if funds permit, a small fleet of demonstration 
motor vans should be organized, which should tour the Presidency 
in charge of an officer with special propagandist abilities, and give 
ocular demonstration to the ryots of the practical value of co- 
operation. In certain other provinces a demonstration train is being 
used for the purpose. But we consider motor vans would be more 
useful in this Presidency. We understand that the Agricultural 
Department has a similar project under consideration, and we 
recommend collaboration with that department in the matter. 

We now deal with the official staff. We consider that the 
present courses as laid down for the training of superior officers are 
adequate, but we are under the impression that full effect is not 
given to them in practice. We desire to emphasize the necessity 
for the training courses as laid down being carefully followed, 
particular attention being paid to the provisions for practical instruc- 
tion. In addition, suitable men should be given facilities for 
proceeding on study leave to other provinces, and. even, in very 
exceptional cases, to Europe. 

We consider that the present courses as laid down for the train- 
ing of auditors and inspectors are adequate, but we desire to 
emphasize here also the necessity for adhering carefully to them, and 
the importance of practical instruction. A departmental test should 
be organized, and the passing of it should be a necessary qualifi- 
cation for promotion from the lower to the higher grade for all 
inspectors, whether audit or administrative. 

A proposal is at present under the consideration of Government 
for the establishment of a course of instruction in co-operation at 
the Madras Institute of Commerce, We understand that syllabuses 
have been drawn up, and that the arrangements include an exami- 
nation at the end of the course, which will cover about a year, with 
a grading of the successful candidates into two classes according 
to their marks. We consider that this proposal would meet the 
requirements of the department. It would, we understand, cost 
government about Rs 7,000 a year. We think that, as soon as 

practicable, inspectors should be recruited only from men who have 
passed the course successfully. We consider also that the Registrar 
should have discretion to depute any particularly promising 
inspector already in the department to undergo the course. 

52. The Registrar's powers and connected matters. The Registrar's 
power to call for such information as he wants, from time to time, 
is limited under the existing provisions of Act II of 1912 and the 
rules made under it. Eule V makes it obligatory on societies to 
prepare and submit certain annual statements to the Eegistrar in 
such form as he prescribes. Sections 17 (H) and 35 (2) of the Act 
contain provisions enabling the Eegistrar to obtain the information 
he wants, but they relate to the exercise of that power only at 
particular times or in specified circumstances in the course of 
inspections and inquiries. We consider that the Begistrar should 
have general power at any time to inspect the books, or call for any 
return which he may consider necessary. This power should be 
exercised by the Registrar personally. The Eegistrar of Joint 
Stock Companies enjoys an analogous power under section 187 (I) 
of the Indian Companies Act, and the rules under the Bombay 
Co-operative Societies Act (711 of 1925) provide for it. 

If a society wilfully makes default in furnishing, or delays the 
submission of, the required information, the Eegistrar should, we 
consider, have power to depute a person to obtain it from the 
society's books, and to recover the cost of so obtaining it, up to a 
reasonable amount, from the society or its officers. This power to 
levy costs is analogous to that which the Eegistrar now enjoys 
under section 37 in regard to the apportionment of cost of enquiries 
and inspections,* and does not amount to interference with the 
autonomy of a society. 

The Registrar can now regulate the borrowing power of societies 
by virtue of the power vested in him under sections 29 and 30 of 
the Act and Eule VIII-B Some doubt has been expressed to us 
as to whether the Eegistrar has power to reduce the borrowing 
power, when once embodied in the sanctioned by-laws of a society, 
without first getting the by-law amended. The amendment cannot 
be effected without the consent of the society expressed in a formal 
resolution. If the society neglects or refuses to pass the resolution, 
the Eegistrar may be helpless. To obviate this possible difficulty, 
we consider it advisable to invest the Registrar with power to make 
the amendment suo motu in cases where default has occurred, so that 
bis order reducing the borrowing power may validly and legally 
replace the old by-law. This power should be exercised solely for 
the better regulation of the business of societies, and should not 
be used as a disciplinary power. The reduction of borrowing power 
as a form of punishment is in practice worthless, for a bad society 


which is not functioning does not care to borrow, and a good society 
which is doing business ought not to be visited with such punish- 
ment. The power should generally be used to prevent improvident 
borrowing, and in such cases it will operate as a healthy check. 
We recognize however that it involves real interference with the 
autonomy of societies. It should therefore be exercised only under 
definite safeguards. Firstly, it should be exercised by the Eegistrar 
personally, and should not be delegated by him to any subordinate 
officer. Secondly, it should be limited to primary societies, rural 
and urban, aud should not extend to central banks. Thirdly, the 
Registrar should not pass his order without previously consulting 
the local union, the federation, and the central bank to which the 
society concerned is affiliated. He should normally refrain from 
taking action when there is a consensus of opinion among these 
bodies against doing so. Finally the Eegistrar should state his 
reasons for the order in writing. 

"We found one instance where a central bank lent out monies to 
societies affiliated to it in excess of their registered borrowing 
power. When the M. C. IL B. and the Eegistrar pointed out the 
irregularity, the President of the bank contended, we understand, 
that resolutions of the general bodies of the societies authorizing the 
borrowing beyond the registered maximum borrowing power would 
cure the irregularity and render the transaction valid, notwith- 
standing the by-law to the contrary, and adduced some legal opinion 
in his favour. If this is correct, the proposed extension of the 
Eegistrar's power would be as infructuous as the original by-law 
of the society. If there is any real ambiguity in the existing law, 
it should, we consider, be cleared up. It is obviously reasonable 
that a primary society, and the central bank which finances it, should 
be bound by their own by-laws. We consider that, if the pan- 
ohayat of a society or the directors of a central bank advance loans 
in excess of the limits prescribed by their by-laws, as has happened 
in some instances that came to our notice, they should be held 
personally liable as guarantors of the loan, and that the rules under 
the Act should, if necessary, be amended accordingly. 

The provisions of section 15 of the Bombay Act as to amalgama- 
tion of societies are useful, and should be extended to Madras. The 
operations under that section are voluntary, and without prejudice 
to the rights of creditors and third parties. 

The Eegistrar should have definite power to summon meetings 
whether of the general body or of the board of management of any 
society. Such power now exists in the case of some societies in 
whose by-laws it has been embodied, but this is not universal. 
When central banks and federations are concerned, the power should 


be exercised by the Registrar personally > and in other casea by an 
officer not below the rank of Deputy Eegistrar. 

In Rule XIV (1), the word may" has given rise to some diffi- 
culty of interpretation. It should be replaced by u shall, " so as to 
exclude, without any ambiguity, the jurisdiction of civil courts, 
except village panchayat courts which may try suits up to Rs. 50 
in value. 

The Registrar should have power, either on his own motion or 
on the application of ^ny party interested, to revise an award or an 
order of an arbitrator, in order to rectify obvious errors resulting in 
injustice or hardship. 

We consider that the registration of the by-laws of provincial 
organizations, such as the P.C.U. and the M.C.U.B., should rest 
with the Registrar, and not be delegated to subordinate officials. 


53. Summary of proposals. In this paragraph we summarize 
briefly the definite proposals we make. Proposals on which we 
are not all in agreement are marked with an asterisk. 

Paragraph 29 : Preliminary. 
Number Page 

1. Immediate attention must be given to the rectification, 

if possible, of all dormant societies, or, failing this, to 

their liquidation ... ... ... ... ... 38 

2. If proof is available, prosecution should invariably 

follow cases of embezzlement ... ... ... 38 

Paragraph 30 .' Division of agricultural loans into long and short- 
term loans. 

*3. Short-term loans should be defined as those repayable 
in whole oub of the next harvest, and long-term loans 
as those repayable over a period of years out of the 
savings of the borrower ... ... ,.. ... 39 

*4. Societies should make forecasts of their cultivation 

requirements ... ... ... ... ... 40 

*5. Unions and central banks should consider these forecasts 
before the season commences, and fix suitable " limits 
of credit" for societies ... ... ... ... 40 

*6. Central banks need not maintain fluid resource for these 

limits of credit ... ,,. ... ... ... 40 

*7. Short-term loans may be granted on promissory notes 

which need not bo registered ... ... ... 41 

*8. The Imperial Bank and the M.O.U.B. should be asked 
to dispense with such registration in the case of short- 
term financo ... ... ... ... ... ... 41 

*9. In primary societies, separate forms on paper of dis- 
tinctive colours should be used for long and short- 
term loar a ... ... ... ... ... .., 42 

*10 Separate ledgers should bo maintained ... ... 42 

*11. Long and short-term loans ai^d deposits should be 

separately shown in balance sheets % .. ... 43 

*12. An analysis of the loans should be appended to the 

balance sheet .., ... ... ... ... 42 

*13. The Bengal system of maintaining a register of short- 
term loans in societies which is signed by the 
borrower is recommended ,., ... ... ... 45 

*14. Loan applications and promissory notes from central 
banks to the M.O.U.b. should be in different colours 
for long and short-term loans ... ... ... 43 

*15. Separate ledgers should be maintained in central banks 

for long and short-term loans ... 43 

*16. In the balance sheets of central banka long and short- 
term loans and deposits should be shown separately. 43 



Paragraph 30 : Division of agricultural loans into long and short- 
term loans cent. 

*17. An analysis should be appended to balance sbeets of 

central banks as in the case of primary societies ... 43 

*18. Similar distinctions should be observed in the M-C.U.B. 43 

*19. Every effort should be made to provide for long-term 

credit through land mortgage banks ... ... ... 44 

*20. When this is done, co-operative institutions should con. 

fine themselves to loans not exceeding six years fc . 44 

Paragraph 31 : Agricultural credit societies. 

21. Societies should be classified according to the recom- 

mendations of the Conference of Kegistrars held at 
Bombay in 1926 44 

22. Societies of the two upper classes should bo given spe- 

cial facilities by central banks ._ ... ... 44 

23. Panchayatdars should bo paid only for clerical work ... 44 

24. Secretaries or clerks should receive a fixed remunera- 

tion ... ... ... ... ... .. ., 44 

25. Payment of dividends should be discouraged ... ... 45 

26. Property statements should be in stitched volumes, and 

should contain full details of property ... .., 45 

27. Loans on the security of harvested crops should be 

granted freely, but only on crops actually grown by 
the borrower. They- should not bo granted unless 
loans for tho cultivation of that crop have been re- 
paid. There should be an adequate margin ou the 
value of the crop, which should be secured by the 
panchayat ... ... .. ... 4 .. ... 46 

28. Short-term loans should ordinarily be granted on the 

security of personal sureties ... ... ... ... 46 

29. The lien over crop, cattle, implements, etc., in respect of 

which loans are granted, should be converted to a 
charge ... ... ... ... ... ... ... 46 

30. The lending rate to members should not be reduced 

below 9f per cent ... ... ... ... ... 46 

81. Local deposits should be encouraged, and current 

accounts should be forbidden ... ... . .. ... 46 

32. Accounts should be as simple as possible : many of the 

registers now in use appear unnecessary ... ... 47 

H3. Overdue loans where both borrower and surety are dead 
should receive immediate attention, and, whero they 
have become time-barred, panohayatdars should bo 
made personally responsible for repayment .., ... 47 

34. Overdue loans should be trnnsferred to a separate ledger, 

and quarterly reports on them should be sent to the 
union and the central bank ... ,.. ... ... 47 

35. A concession should be allowed on money order com- 

mission charged on sums sent through the pr>st 

office ... , ... ... ... ... ,,, 48 


Number. Page 

Paragraph 32 : Urban credit societies. 

36. Efficient, and at any rate semi-expert, management is 

an essential ... ... ... ... ... .. 48 

37. Central banks should when necessary finance urban 

banks ... ... ... ... ... ... ... 49 

38. Current accounts should be confined to members ... 49 

39. Interest should bo calculated on minimum monthly 

balances ... ... , ... ... ... 49 

40. Urban banks should be supplied with a text book on 

the law and practice of cheques and current 
accounts ... ... ... ... ... .., 49 

41. Savings bank accounts should be encouraged ... ... 49 

42. Single fixed deposits for large amounts should be 

avoided, or should be split into smaller amounts ... 49 

43. Urban banks should lend to a greater extent than at 

present on tho security 'of personal sureties .. , ... 49 

44. Ledgers should have daily balances thrown o\ii > and 

interest should be calculated on the decimal product 
system : product tables should bo supplied to each 
bank ... ... ,, ... ... ... ... 50 

45. Balance sheets should show the loans and deposits 

falling due each year, and also extensions and over- 
dues ... ... ... ... ... ... ... 50 

46. Thrift societies need not maintain a reserve fund ... 50 

47. All urban societies should provide for savings bank 

accounts ... ... ... ... ... ... 51 

Paragraph 33 : Societies jor depressed^ backward, and similar classes. 

48. The Labour Department should undertake organization 

and supervision of all societies for these classes in 
districts where it is working ... ... ... ... 51 

49. The Co-operative Department should audit these 

societies... ... ... ... ... ,.. ... 51 

50. The responsibility of the Labour Department should 

extend to societies organized by missionary and 

other philanthropic bodies ... ... ... ... 52 

51. Tho remaining Kallo,r societies in Tan] ore should be 

transferred to the Labour Department ... ... 52 

52. The Fisheries Department should be responsible for all 

fishermen's societies, in districts whore it is work- 
ing ... .., 52 

53. In other districts, they should be under the Labour 

Department ... ... . ... ... ... 52 

54. Audit reports should be supplied free to the Labour 

Officer and to the financing bank ... ... ... 52 

55. Depressed class societies should, wherever possible, be 

affiliated to existing unions ... ... ... ... 62 

56. The Labour Officer should have a seat on tho federation, 

and the inspector a seat on the union ... ... 52 

57. Loan applications should pass through the District 

Labour Officer or the Deputy Registrar 53 


Number. Page 

Paragraph 33 : Societies for depressed, backward, 
and similar classes cont. 

58. In each district, and in Madras City, there should be one 

inspector for every 25 societies regardless of the total 
number ... ... ... ... ... ,.. 53 

59. These inspectors should work under the District Labour 

Officer, or under the Deputy Registrar if there ia no 
District Labour Officer ... ... ... ... 53 

60. They should have special qualifications, and should 

undergo a special course of training prescribed by a 
board. They should be on probation till they have 
passed an examination under an examination board. 53 

61. These societies should continue to be financed by the 

Christian Central Bank, which should however have 
freedom to refuse to finance unsatisfactory societies. 54 

Paragraph 34 : Agricultural demonstration and supply 
societies, and kindred matters. 

62. A Deputy Director of Agriculture should be employed 

under the Registrar to assist these societies, and 
should work through the ordinary departmental 
staff ... ... ... ... ... ... ... 55 

Paragraph 35 : Itonn and sale societies. 

63. Every assistance should be given to the formation of 

these societies ... ... .,. ... ... ... 55 

64. .Loans should only be given on produce grown by 

members ... ... ... ... ... ... 55 

65. Produce should be examined as to quality and quantity, 

and watched to see that it does not deteriorate ... 55 

66. The amounts of loans should bo fixed at a definite pro- 

portion to the value of the produce, to allow for 
contingencies, and, especially in the case of some 
crops, for fluctuations in price ... ... ... 56 

67. Produce should be under Lock and key, and one key 

should be with the central bank ,., ... ... 56 

68. Hazardous and non-hazardous produce should be stored 

separately ... ... ... ... ... ... 56 

69. Insurance should be fully effected, at least on hazardous 

produce ... ... ... ... ... ... 56 

70. Policies should bo in the names of the central bank and 

of the society, and should bo held by the former ... 56 

71. The cential bank should periodically inspect the pro- 

duce and verify the insurance .. ... ... 56 

72. Loan and sale societies which cannot obtain finance from 

central banks should be allowed to finance them- 
selves from commercial banks ... ... ... 56 

73. The building of godowns is not, in general, a necessary 

precedent to the formation of such societies, but it 

is essential in some cases ... ... .., ... 56 


Number. ' Page 

Paragraph 86 : Weavers' societies. 

74. A textile expert should be engaged to help the existing 1 

societies, and to organize new societies ... ... 57 

Paragraph 37 : Building societies. 

75. A rebate should bo granted to members and societies 

which make repayments in advance of the due dates. 57 

76. Inpayments by members should be allowed either in 

monthly or annual instalments ... ... ... 57 

77. Socie ties should a asist members in the preparation of 

plans, and in construction of houses ... ... 57 

78. Societies should not be forced to acquire land for roads, 

nor to construct roads or side drains ... .. 58 

79. The rate of interest on Government loans should be 

reduced by one-half per cent ... ... ... 58 

80. The rate of penal interest should be reduced ... ... 58 

81. A revised form of ledger should be introduced ... 58 

Paragraph 38 : Stores. 

82. Expert management is essential ... ... ... 58 

83. These societies should not be established in villages or 

in small towns ,.. ... ... ... ... 58 

84. A system of joint purchase on the indent system is 

more suitable to villages ... ... 58 

Paragraph 39 : General. 

85. The report on the survey of cottage industries should be 

studied jointly by heads of the Co-operative and 
other Departments, who should take concerted 
action ... 69 

86. Government should consider the advisability of directing 

district officers of the nation-building departments to 
hold poiiodieal conferences to co-ordinate their acti- 
vities : presidents of federations and central banks 
should be invited to attend them ... ... ... 59 

87. The Co-operative Department should do all in its power 

to assist the rural reconstruction movement... ... 59 

Paragraph 40 : Central banks. 

88. No further steps should be taken in tho near future to 

eliminate individual shareholders ... ... ... 60 

89. The board of management should be limited to 21 

members : 14 from unions and 7 from individual 
shareholders ... ... ... ... ... ... 60 

90. [Representatives of individual {shareholders should bo 

elected by the full general body ... ... ... 60 

91. The district should be divided into areas, and unions in 

each area should elect common representatives every 

two years ... ... ... ... ... ... 60 

92. Banks should be allowed to co-opt to the board of 

management persons with 'special knowledge, who 
should not have votes ... ... ... ... 60 


Number. Page 

Paragraph 40 : Central banks cont. 

93. Tho by-laws should provide for a separate secretary 

and treasurer ... ... ... ... ... ... 60 

94. There should either be a paid secretary, or a competent 

manager if the secretary is honorary ... ... 61 

95. Ihe same man should not be secretary of the central 

bank and the federation, but the presidents should be 
common to both ... ... ... ... ... 61 

96. The borrowing power should net be further increased... 61 

97. Cash should be kept in a fire-proof safe under double 

look . c . ... 61 

98. Cashiers should give security ... ... ... ... 61 

99. Cash should not be left with primary societies... ... 61 

100. Accounts should clearly show repayments in respect of 

each promissory note ,.. ... ... .. ... 61 

101. Promissory notes deposited as security for cash credits 

should be accompanied by a c continuing guarantee 
agreement' ... ... .. 61 

102. Banks should pay more attention to the fixing of proper 

periods of loans, and convenient dates of repayment. 61 

103. When crops fail, short-term loans should be freely extend- 

ed : where they have not failed, repayment should be 
insisted on, and further loans refused to societies in 
default ... ... ... ... ... ... 62 

104. Where loans are granted to societies organized for 

labour, payments for contracts should be made direct 

to the bank .... 62 

105. Jlate of interest on loans to societies should be reduced 

wherever possible to 7-| per cent .. ... ... 62 

106. Banks should exercise more caution in taking current 

accounts, and a text-book on these matters should be 
prepared ... ... .., .,, ... ... 62 

107. Economy of labour may be effected by improving the 

form of accounts ... ... ... ... ... 62 

108. Banks should encourage the formation of loan and 

sale societies ... ... ... ... ... ... 62 

109. In any year when profits permit, a previous shortage , 

in dividends may be made up to shareholders ,.. 63 

110. Books should invariably be closed on June 30th ... 63 

111. Collecting agents should not be sent out at the close 

of the year if collection at that time is inconvenient 

to the ryot ... 63 

1 12. Banks ehould keep a register of the history and finan- 

cial condition of each society ... ... 68 

Paragraph 41 : The Madras Central Urban Bank. 

113. The number of representatives of individual share- 

holders on the board of management should be 
increased ... 64 

114. The bank should be encouraged to co-opt on the board 

of management persons with special knowledge, who 
should not have votes ... ... ... ... ... 65 



Paragraph 41 : The Madras Central Urban Sank oont. 

115. It should inspect central banks which it finances ... 65 

116. The borrowing power should not be further increased. 65 

117. The Christian Central Bank should be affiliated to the 

bank ... ... ... ... ... ... ... 65 

Paragraph 42 : Land mortgage banks. 
Central land mortgage bank. 

118. A central land mortgage bank should be formed ... 65 

119. Its total debentures should not exceed in value 50 per 

cent of the value of the tobal properties mortgaged to 
primary land mortgage banks ... ... ... 65 

120. Primary land mortgage banks and individuals should 

be members : the latter should not be allowed to 
borrow .,, ... ... .,. ... ... ... 65 

121. Dividends should not exceed 1\ per cent ... ... 65 

122. There should be a trustee or trustees for debenture 

holders : the latter should be represented on the 
management ... ... ... ... ... ... 65 

123. A reserve fund should be rapidly built up ... ... 65 

124. The maximum borrowing power of the bank should be 

25 timea its paid-up capital and reserve fund ... 65 

125 Government for five years should guarantee the interest 

on debentures, which should be trustee investments. 66 

126. The period of debentures should not exceed 25 or 30 

years, and of loans 30 years ... ... ... ... 66 

127. Interest ou loans should not exceed 9 per cent, and re- 

payment should be by the equated system 4 .. ... 66 

128. The bank should only finance primary land mortgage 

banks ... ... ... ... ... ... .,, 66 

129. It should not accept short-term deposits ... ... 66 

130. A sinking fund should be provided for ... ... 66 

131. Provision should be made for the redemption of deben- 

tures ... ... ... ... ... ... ... C6 

Primary land mortgage banks. 

132. Government should lend each primary bank, in its 

initial stages, an officer to value properties and to 
assess the credit of borrowers .., ... ... ... 67 

133. Ijegal opinion should be taken on title-deeds ... ... 67 

134. Banks should have a paid staff 67 

135. Bules to ensure prompt repayment should be drawn up, 

and strictly observed ... .,, ... ... ... 67 

136. The maximum borrowing power of members should be 

raised to Es. 5,000, but the interests of small bor- 
rowers should not be neglected ... .. ... 67 

137. The present area of operations should be extended ... 67 

138. Loans should be non-recallable, provided the borrower 

fulfils the conditions of the loan, but borrowers should 
be permitted to repay in advance, wholly or in part, 
oft giving due notice .,, f ., .,, .,, tf . 67 


Kcimber, Page 

Paragraph 42 : Land mortgage bank* cont. 

Primary land mortgage banks cont. ' 

139. The- possibility of mortgages being annulled under the 

provisions of Insolvency Law should be investigated. 67 

140. Subsequent loans by Grovernmont should not take 

precedence over loans granted by these banks ... 67 

141. Banks should have power of sale, subject to necessary 

conditions ... ... ... ... ... ... 68 

142. Dividends should not exceed 9 percent, and every effort 

should be made to build up adequate reserve funds. 68 

143. A separate legal enactment should be passed to deal 

with these banks ... 68 

144. Government should do all in their power to encourage 

Indian insurance companies to invest in the deben- 
tures of the central land mortgage bank ... .., 68 

Paragraph 43 : De-officialtzation. 

145. The Registrar should arrange periodical conferences of 

officials and non-officials ... ... ... ... 69 

146. He should not embark on any important change of 

policy without first consulting non-officials ... ... 69 

Paragraph 44 : Supervision and inspection. 

147. Each central bank should be responsible for the inspec- 

tion of the primary societies which it finances ... 70 

148. It should receive audit reports and reports from unions, 70 

149. Where necessary, it should enquire into the affairs of 

a society ... .., ... ... ... ... 70 

* 150; If a bank considers the condition of any union or 
primary society unsatisfactory, it should ask the 
federation or the union concerned to take necessary 
action, Tf the union or federation fails to take such 
action, the bank should refer the matter to the Regis- 
trar, who should take action, through the bank or 
otherwise ... ... ... ... ... ... 70 

151. Unions should be encouraged to co-op b members ... 70 

152. The responsibility of a union should include the various 

points specified .., ... ... ... .. ... 70 

153. Members of the governing bodies of unions should 

frequently visit societies ,.. ... ,.. ... 71 

154. The union should forward an annual report on each 

society to the Deputy Registrar and to the central 
bank ^ ... 71 

155. Federations should give adequate representation to 

central banks ... ... ... ... ... ... 71 

156. Federations should exercise general supervision over 

unions, union supervisors, and office bearers, employ* 

ing an adequate staff for the purpose ... ... 72 

157. Union supervisors should be on a district cadre under 

the general control of the federation ... ... ... 72 

158. Federations and unions should be responsible for - 

propaganda and the organization of new societies ... 72 

159. The supervision fund should be centralized in each 

- > district ... v .. ... .,%, , 72 


Humber. Page 

Paragraph 44 : Supervision and inspection eont. 

160. Central banks and primary societies should each pay 

to it one-half per cent on their lending transactions. 72 

161. Central banks should collect society contributions ... 72 

162. Supervision fund should be a first charge on the 

revenues of central banks and primary societies ... 72 

163. It should be made over to the federation, or such non- 

official agency as the Registrar may prescribe, which 
should contribute from it to unions ... ... ... 72 

164. In weaker .districts, where the supervision fund is in- 

adequate, Government should contribute to it ... 73 
Paragraph 45 : Government staff. 

165. The Registrar should hold office for five years ... 73 
! 166. There are advantages in the appointment as Registrar 

of an Indian gentleman ... ... ... ... 7S 

167. When a new Registrar is to be appointed, he should be 

attached to the department for at least six months 
before taking office .. ... .., 73 

168. The old arrangement of having an officer of the stand- 

ing of Deputy Registrar for eaoh district should be 
reverted to ... ... ... ... ... ... 73 

169. There should be one for eaoh district except the Nilgiris 

and Madras .., ... ,.. ... ... .. 73 

s 170. Assistant Registrars should bo abolish ed t but an officer, 
preferably of the same status, should be appointed 
personal assistant to the Deputy Registrar in each 
district ... ... ... .. ... ... ... 73 

14 171. There should be a second personal assistant in Coim- 
batore and Chingleput, in charge of the Nilgiris and 
Madras City 74 

172. The practice of appointing Deputy Registrars or their 

assistants from other departments should be restored, 
and the Registrar should also be empowered to make 
appointments by direct recruitment ... ... ... 74 

173. There should be at least one audit inspector for every 

sixty societies ... ... ... ... ... ,. 74 

174. There should be at least three administrative inspectors 

in each district, other than those required for audit 

and non- credit work ... ,., ... ... ... 74 

175. There should be a reserve of 10 per cent for leave and 

training... ... .... ... .,. ... ... 75 

176. There should be four inspectors for Madras City ... 75 

177. Union supervisors should be required to pass an exami- 

nation recognized by the Registrar ... ... ... 75 

178. They should be eligible for promotion to the inspector 

grade in the department ... ... 75 

179. An officer should be placed on special duty for four 

months to consider a reduction in the number of 
returns, and the simplification of the office system 
generally : he should also investigate the possibility 
gf further delegation of powers ... ... ... ,76 

* 180. If funds permit, eaoh inspector should have one peon... 73 



Paragraph 40 : Audit and audit unions. 

J81. The auditor should carry oat the various duties detailed 7(5 

182. Hie first duty should be the verification of the caah 

balance ... ... ... ... ... ... 77 

183. The audit report should provide for a clear and definite 

statement that all assets and liabilities have been fully 
verified, and should include detailed reports of 
irregularities .. ... ... ,.. ... ... 77 

184. Societies should be audited in two groups, for the years 

ending on June 30fch and December 31st respectively. 77 

185. Cash balances should bo verified at both the preliminary 

and final audits ... ... ... ... ... 78 

1S6. The Deputy Registrar or his personal assistant should 

super-audit 5 per cent of societies. ... ... ... 73 

187. Audit reports of societies should be supplied free of cost 

to central banks and unions. Others should be 
allowed either to make copies, or to obtain them on 
payment ... ... ... ... ... ... 78 

188. Central and urban banks should pay for their concurrent 

audit 79 

189. They should also pay for their final audit, with the 

exception of- urban banks with a working capital of 

less than Es. 50,000 79 

190. A central audit organization should be formed for 

central and urban banks ... ... .... ... 79 

191. The cost should be allocated to affiliated banks in pro- 

portion to their transactions , ... ... ... 79 

192. Where the organization does final audit, which would 

otherwise have been done free by the department, the 
department should make grants in respect thereof ... 80 

Paragraph 47 : Reserve funds. 

193. iPhe rate of interest on loans made by a central bank to 

a society, up to the amount of its reserve fund 
deposited with that bank, should not exceed by more 
than 1 per cent the rate allowed on such deposits ... 80 

194. Central banks and primary societies should be encour- 

aged to invest their reserve funds in redeemable 
Government securities 81 

196. Whea the reserve fund of a primary society exceeds 20 
per cent of its working capital, the excess may bo 
used in its own business 81 

196. Consumers' and producers' societies, which do not accept 

deposits or give loans, may use all their reserve 
funds in their business 81 

197. When reserve funds are in Government securities, these 

securities should not be used as cover for borrowings. 81 



Paragraph 48 : Fluid resource. 

198. The standard of fluid resource to be maintained by limit- 

ed liability societies with deposits under Us. 20,000, 
and by unlimited societies as a whole, may, for the 
present, be left to the discretion of the .Registrar ... 82 

199. The standard of fluid resource in central banks should 

be 30 per cent of fixed deposits falling due within the 
next six months, or 50 per cent of those falling due 
within the next 30 days, whichever is from time to 
time the higher ... ... ... ... ... 83 

200. The due dates of repayments of large deposits should, as 

far as possible, synchronize with the period when re- 
payments may be expected, and such deposits 
should, wherever possible, be split into smaller sums, 
the due dates of which should be spread over a suit- 
able number of months or years ... ... ... 83 

201. Central banks should exercise more care than at present 

with regard to current accounts. If the precautions 
recommended are taken, the present standard of 50 
per cent may remain .., ... .,, ... ... 83 

202. Savings bank accounts should be confined to savings, 

and not utilized as current accounts ... ... ... 83 

203. In urban banks, every effort should be made to work up 

to the standard recommended for central banks, 
although we realize the difficulties in doing so ... 84 

204. The Registrar should endeavour to help urban banks 

by obtaining cash credit facilities f % or them on the 
collateral security of their members' promissory 
notes .,. ... ... ... ... ... ... 81 

205. If central banks agree, it is safe for them to concentrate 

their cash credits with the M.C.U.B. 86 

200. The undrawn cash credits of central banks with the 

M.C.U.B. should be included in their fluid resources. 86 

207. The existing arrangements regarding the form in which 

fluid resource should be kept are sound, and need not 
bo changed, but steps should be taken to ensure that 
the continuance of the present facilities in the matter 
of cash credits given to co-operative bodies by the 
Imperial Bank is made obligatory on the bank by 
some statutory provision, contractual guarantee, or 
other suitable method... ... ,.. ... .., 89 

Paragraph 49 : Deposits by local bodies, etc. 

208. A higher standard of fluid resource is necessary in the 

case of current accounts ... ... .*, .., QQ 

209. Interest thereon should be calculated on minimum 

monthly balances ... ... 90 

210. Efforts should be made to arrange that deposits of moie 

than Ks. 10,000 are repayable when repayments are 
expected from societies . . . ... ... . . % 90 

211. Such deposits should be accepted from local bodies only 

on condition that six months' notice uf withdrawal is 
given 90 

Ktunber. Pagfc 

Paragraph 49 : Deposit* by local bodies, etc. cont. 

212. On receipt of such notice, banks should advise the 

Registrar, and state what steps are being made to 
meet payment: a further report should be made 
after three months ... ... , a . ... ... 90 

213. In addition to the fluid resource required for other 

deposits, at least 66 per cent of the amount required 
should be available two months before repayment is 
due, and the Begistrar should be so informed ... 90 

214. Deposits from local bodies, etc., should not be accepted 

in excess of four times the share capital plus reserve 
fund of the bank, except with the .Registrar's 
sanction ... ... ... ... ... ... 91 

Paragraph 50 : Arbitration, liquidation and execution. 

215. Each Deputy Eegistrar should maintain a panel of 

suitable non-official gentlemen as honorary arbitra- 
tors, who should have a small staff, and be given 
travelling allowance ... ., ... 91 

216. It is important that immediate, attention should be 

paid to dormant societies, which should either be 
revived or liquidated ... 91 

217. Liquidation should be entrusted to suitable non-officials, 

where such are available, who should receive as 
remuneration 5 per ceut of the amounts realized ... 91 

218. The Registrar should be enabled to give directions to 

liquiaators from time to time ... ... .,. 92 

219. The liquidator should be enabled to determine the 

contributions to be made from time to time, and not 

once for all .. ... ... ... ... ... 92 

220. The estate of a deceased member should be a contri- 

butory asset ... ... ... ... * ... ... 92 

221. The period for which the estate of a Deceased member 

is liable should be extended to two years ... ... 92 

22^. A liquidator should have power to refer matters in 

dispute to arbitration .. ... ... ... ... 92 

223. Provision should be made for the disposal of books after 

liquidation ..< ... ... ... ... ... 93 

224. A ledger should be maintained showing the demand 

against each member, and the collections from time 

to time ... ... 93 

225. The preliminary decree in the case of mortgage loans 

should be final ... ... ... ... ... ... 93 

226. If a separate Co-operative Act is passed for Madras, it 

should include provisions similar to those in sections 

50 and 51 of the Bombay Act ... ... ... . 93 

27. The limit of 40 oases per taluk that may bo sent to a 

Tahsildar for execution should be removed ,.. ... 93 

'228. Otherwise, honorary arbitrators should be empowered to 

execute their own decrees ... ... ,.. 93 

229. Village panohayat courts should be given powers of . 
execution for sums not exceeding Es. 50, even where 
. they have not passed the decrees themselves ... 93 


Number. Page 

Paragraph 50 : Arbitration, liquidation and execution oont, 

230. A special staff should be employed for execution, and 

its cost should be recovered from defaulters ... 03 

231. Officers authorized by the Registrar should be empower- 

ed, on the application of the society concerned, to 
recover overdue instalments of loans as if they were 
arrears of land revenue ... ... . .., 93 

232. This power should not extend to tho arrest of the 

defaulter, nor to the sale of his immovable property, 93 

Paragraph 51 : Education and training. 

233. Education of non-officials should be the duty of the 

P.O.U., working through federations ... ... 94 

234. Government should give it a grant-in-aid ... ... 94 

235. Government should give an annual grant of Us. 1,000 to 

each federation for education and training ... ... 94 

286. Courses of instruction should be arranged in consulta- 
tion with the Registrar ... ... ... ... * 94 

237. Demonstration motor- vans should tour the Presidency, 

in chargo of a specially selected officer ... ... 95 

238. The training courses laid down for the official staff 

should be carefully followed, and suitable men should 

be given leave to study outside the Presidency ... 95 

239. Before promotion to the higher grade, all inspectors 

should be required to pass a departmental test ... 95 

240. Inspectors should be recruited only from men who pass 

the proposed course in co-operation at the Institute 
of Commerce, and the Registrar should be empower- 
ed to depute suitable men already in the department 
to undergo this course ... ... ,, r ... 95 

Paragraph 52: The Registrar's powers and connected matters. 

241 . The Registrar should have general power, personally, to 

inspect the books of a society, or to call for any 
return that he considers* necessary ... ... ... 96 

242. If a society makes default, or delays the submission of 

the books or the return, the Registrar should have 
power to depute a person to get the necessary 
information at the cost of the society ... ... 96 

243. The Registrar should have power suo motu to amend 

the by-laws of a society to reduce its borrowing 
power, subject to definite provisos. This power 
should not exten'd to central banks ... ..,. ., 96 

244. If a society lends or borrows in excess of its by-laws', 

the panchayat or directors should be personally res- 
ponsible for the loan .. ... ... ... ... 97 

245. The Registrar should have power to summon meetings of 

the general or governing body of any society ,. 97 

246. In rule XIV (I) the word ' may ' should be replaced by 

shall' ... ... 98 


Number. Pag* 

Paragraph 52 : The Registrar's powers and connected matters oont, 

247. The Registrar should have power to revise an award or 

order of an arbitrator 98 

248. The registration of the by-laws of provincial organiza- 

tions should rest with the Registrar, and should not 

be delegated to subordinate officials ,., 98 

54:. Final. We have tried to work out the cost of our pro- 
posals, but have found it impossible to frame an accurate estimate. 
We* realize that they will involve a considerable increase in 
expenditure, though some of our proposals under audit will result 
in a saving, We are however satisfied that this increase is neces- 
sary. In many respects the co-operative movement in Madras is in 
an unsatisfactory condition, but none is, we consider, fraught with 
greater potential benefits to the country. Further, the figures given 
in paragraph 24 show that the present Government expenditure, per 
member, is lower in Madras than in any other province of India, 
except the United Provinces. 

When Government asked us to become members of . this Com- 
mittee they suggested that the Committee would complete its work 
in between three and four months. It has taken us full four months. 
The magnitude however of the task proved such that a longer period 
would have been advantageous. 

Our grateful acknowledgments are due to the Eegistrar, 
Mr. Hood, the Joint Registrar, Deputy Registrars and the staff of 
the Co operative Department generally, for the whole-hearted 
assistance ever given to us both in Madras and throughout the 
Presidency. Our thanks are also due to the various honorary 
workers who freely gave up their time to assist us in our enquiries. 

Finally, we desire to record our cordial appreciation of the 
services of Mr. Cooke. our- Secretary, and his staff, who always dis- 
. charged their duties promptly and satisfactorily. 

23rd January 1928. 
26/A January 1928. 
VAth January 1928. 
23rd January 1928. 
31stf January 1928. 
23rd January 1928. 
2rd January 1928. 

(Signed) C. A. H. TOWNSEND.* 

( ) E. H. ELLIS * 

( ) B. P. STOCKER.* 


( ) G. K. DEVADHAK.** 


( ) K. T. PAUL. 

* Subject to minute of dissent. 

not received. 



We agree with our colleagues on the standard of fluid resource 
recommended, but we differ from them on the important question of 
the form in which it may be held. Originally fluid resource was 
composed only of cash and Government securities. It was then 
proposed that the undrawn portion of cash credits be included. The 
matter was discussed at a Simla Conference, when opinion was 
adverse, and in G.O. No. 1054, Eevenue , dated March 16th 1918, 
its inclusion was prohibited. In however G.O. No. 1427, dated 
August 3rd 1920, it was ordered that fluid resources should denote the 
cash balance on hand with the bank, plus undrawn cash credit with 
the Bank of Madras, plus 80 per cent of the market value (as noted 
in the daily papers) of Government promissory notes. We do * not 
however think that Government intended that a central bank should 
hold all its fluid resource in the form of undrawn cash credit. 

The Maclagan Committee was in favour of accepting as fluid 
resource the undrawn portion of a cash credit with the Provincial 
bank or the Presidency bank, provided that there existed a moral 
certainty that such bank will not withdraw the accommodation 
without adequate notice (paragraph 153). Such u adequate " notice 
however could not be of long duration in periods of financial strin- 
gency, and it is at such times that the greatest need for substantial 
fluid resources would arise. It must also be realized that, whatever 
" moral certainty " may exist, such cash credits are legally recallable 
on demand. A bank's first duty is to its depositors, and, at a time 
of widespread financial stress or of a crisis in the co-operative move- 
ment itself, it is possible, even probable, that the cash credit facilities 
would bo curtailed : it is at such times that fluid resource is most 

It should further be noted that the Maclagan Committee states that 
its recommendation is a for the present " (paragraph 134). ' Also it 
is only fair to that Committee that its whole fluid resource proposals 
should be considered together. They include a recommendation for 
a fluid resource in the ease of the Provincial banks of " one-third of 
the possible liabilities of the bank falling due in the ensuing year " 
(paragraph 176). In the case of central banks it recommends one- 
half of the fixed deposits falling due in the ensuing year (paragraph 
155), 75 per cent of savings bank accounts (paragraph 128), and 
100 per cent of current accounts (paragraph 127). These standards 
are far higher than those in force or than those now suggested by 
us. In paragraph 218 they state u we consider it unsouud and 
dangerous to place too much reliance on such help" (viz., the 


of commercial banks). In reeommending^such high standards of 
fluid resource, the Maclagan Committee had to sanction some relaxa- 
tion in its form to enable the banks to continue working ; but, in 
view of its obvious hesitation in giving such sanction, we do not 
think that it would have agreed to it combined with the much lower 
fluid resource standards of to-day. "We feel confident that it would 
have given no support to the practice adopted by many central banks 
of relying entirely on their undrawn cash credit : no commercial 
bank would in our opinion have given a cash credit for an amount 
equivalent to the full amount of fluid resource required by the high 
standards recommended by the Maclagan Committee, and this 
practice therefore could not, we think, at that time have been foreseen. 

The figures quoted by our colleagues show that, out of a total 
Es. 1,02,52,000 representing cash credits on the security of demand 
promissory notes granted by commercial banks to co-operative insti- 
tutions in India, Es. 54,31,000 relate to the Madras Presidency. 
It would appear therefore that the practice of relying largely on 
cash credits as fluid resource is peculiar to this province. Our 
colleagues give other figures showing the fluid resources of co-opera- 
tive institutions in the Madras Presidency : the amounts however of 
cash on hand differ very largely from bank to bank, and several 
banks normally maintain only sufficient for their till requirements 
and rely otherwise on their undrawn cash credit. 

It has been proposed to concentrate the fluid resource in the 
M.C.U.B. : it is argued that, as the central banks are shareholders in 
this institution, their interest would be safeguarded. In the absence 
however of definitely earmarked cover in the shape of Government 
securities we think this would be unsafe, as, in a crisis in the co- 
operative movement, the M.C.U.B. might feel the strain at the 
same time as the central banks, and, as in the case of other banks, 
its first duty is to (its own depositors. 

It would be difficult for some central banks to adjust their fluid 
resource to the necessary figure by the continual purchase and sale 
of Government securities, and we do not therefore propose to remove 
the present facilities altogether. We suggest that, for the present, 
25 per cent of fluid resource should be allowed in the shape of 
undrawn cash credit with the Imperial Bank : the balance should be 
held in cash and Government securities. The securities however 
should be in a form redeemable at a comparatively early date, as 
other Government securities are subject to greater fluctuations in 

We feel very strongly that the holding of appreciable tangible 
liquid assets by the central banks is very necessary as a protection to 
the agriculturist. If such precautions are not taken, it may be 
necessary in times of stress to resort to the wholesale calling in of loans. 


with the result that the security afforded by unlimited liability 
would have to be realized. This security has frequently been quoted 
as a reason why co-oporative banks differ from commercial banks and 
why the former need not adopt the business precautions of the latter. 
We strongly protest against this view. The enforcement of unlimit- 
ed liability on any large scale is too serious a contingency to 
contemplate. It would mean the ruin of agriculturists not only for 
their own debts, but for those of others. No financial saving to the 
banks can justify this danger. It is probable also that, as a security, 
unlimited liability would not prove effective, as in many districts 
purchasers would not be available for the land. 

Our proposals are not intended in any way to curtail the present 
finance obtained by co-operative banks from commercial banks, but 
only the purpose for which the finance is used : such finance would 
be more freely available for short-term credit if the co-operative 
banks hold their own liquid assets : it will be noted in the paragraph 
on long and short-term loans that we anticipate a large expansion in 
short-term business with the extra facilities we there suggest. 

Certain other recommendations in the main report to which we 
have subscribed are dependent on the adoption of our proposals 
regarding fluid resource, e.g., those referring to 

(1) the continuation of long-term loans : greater fluidity is 
required in the absence of tangible liquid assets ; 

(2) rediscount facilities with the proposed Eeserve Bank ; 

(3) deposits of public bodies etc., with central banks; 

(4) maintenance of current accounts by central banks ; 

(5) the constitution of the M.C.TJ.B. and of central banks as, 
if the availability of the fluid resource is in question in times of 
emergency, much greater precautions are necessary to prevent such 
contingency arising, and this would require financial skill of the very 
highest order. Even then, trouble in another province may re-act 
on the banks in Madras by causing general distrust in the minds of 

We have been unable to ascertain the methods adopted in rela- 
tion to fluid resource in other countries. Conditions in general 
however differ from those in India : in particular we understand that 
in some cases banks are linked directly with joint- stock banks by the 
election of directors common to both or in some other way, and that 
in others there is a form of Government guarantee, 





I. Supervision. It is with a sincere feeling of regret that I have 
decided to record a note of dissent from some of the recommendations 
of the majority of the Committee on the question of supervision. 
I do so with a full sense of my responsibility and due respect to the 
judgment of my colleagues from whom I am constrained to differ. 
No subject involved in the enquiry under report has caused me 
greater anxiety, or perplexed me more, than the question of the 
establishment of proper links between the official and non-official 
agencies on the one hand and the non-official agencies inter se on the 
other. There was conflict and confusion at every turn. There was 
no definition of duties and no demarcation of powers. Audit, 
inspection, administration , supervision, control and other terms were 
employed without any clear perception of their appropriate relations 
to the various agencies. It is true that these functions overlap to 
some extent in actual practice, specially in their operation on the 
simple mechanism of the rural credit society, which has no depart- 
ments and no bureaus such as could be marked off for entrustment 
to the exclusive control of distinct agencies. Nevertheless, it became 
evident that, without defining and delimiting functions in some 
manner, it was impossible to extricate the co-operative machinery 
from the deadlock that has crept into its working. The recom- 
mendations which the Committee has made for the solution of this 
intricate problem are briefly these 

Audit is shortened but made to conform closely to the statutory 
requirements. Inspection is tacked on to finance ; and supervision 
is divorced from finance. Audit is assigned to the official staff ; 
finance with its incidental inspection, to the central bank ; normal 
supervision to the unions assisted by the federations ; and supple- 
mental and residuary supervisory control to the Eegistrar's 
administrative inspectorate. The Committee proceeds to supplement 
these proposals by the following recommendations to protect the 
financial interests of the movement : "If there is anything needing 
enquiry in these (audit) reports, or if for any reason whatever the 
bank desires to do so, it should make its own detailed enquiry into a 
society's affairs, either by one of its directors or by its own paid 
inspector. It should then take such steps as it desires to safeguard 
its financial interests. In the first instance this should be done 
through the union or the federation, but, if the necessary action is not 
undertaken by these bodies, the bank should address the Eegistrar 
in the matter, who should either empower the bank to take the neces- 
sary steps itself, or act in such way as he thinks fit." 


It is now for me to state how far I am in agreement with these 
recommendations and wherein I disagree with them. I am in 
agreement with these recommendations in so far as they confine the 
departmental activities to the discharge of statutory functions and of 
the ultimate responsibility to the movement and allocate the non- 
statutory functions to the non-official agencies. I am also in general 
agreement* with the proposal to assign the normal administrative 
supervision to the unions assisted by the federations and the power 
and the responsibility of inspection to the central bank. These 
proposals are in consonance with the undisputed notion of the local 
supervising union being the most appropriate institution to be 
entrusted with supervision. The federations are created in the hope 
that they will strengthen and co-ordinate the activities of the unions 
by putting their supervisory staff on a district cadre, by educative 
and propaganda work on a district- wide scale and by other means. 
I agree that an attempt should be made to so equip the federations as 
to fulfil the expectations raised of them. If the unions and federa- 
tions function properly and if audit is efficient, the central bank will 
be in a position to safeguard its financial interests by carefully exer- 
cising its power of inspection and Amy not, and normally will not, 
wish for more power or responsibility. So far, I am with the 

But I am in emphatic disagreement with the Committee's 
recommendations in so far as they proceed to state that the supervi- 
sion required to supplement the work of the unions and the federa- 
tions should come from the official agency and not from the central 
banks and that, even if the unions and federations fail to safeguard 
the financial interests of the movement, the central banks should 
not step in to rectify matters, unless empowered by the Eegistrar to 
do so, but depend upon the departmental help. My reasons for 
dissenting from this view aro threefold. In ike first place, these 
proposals strongly militate against my convictions that the non- 
statutory functions should be fully shared by the non-official agencies 
and that any immediate responsibility for their discharge should not 
be vested in the department, as such a course is bound to result in 
real interference by the departmental staff with the autonomy of 
the organizations. 

Secondly, the proposal involves a distrust of the central bank 
which is both unmerited as well as unfounded. I cannot see why 
the central bank should require the leave of the Eegistrar to take 
the steps needed to safeguard the finaDcial interests of itself, which 
are identical with those of the entire movement. If the reason 
is that the action of the central bank involves interference with 
the societies, then, how is the interference by the official agency 
justified ? The central bank is, in theory as* well as in actuality, 
.a federation of societies concentrated for finance. The societies 


are most effectively represented on its general body. Moreover 
the rural credit society and the central bank are knit together 
by ties of financial community of interest. The theory that the 
individuals in central banks exercised deleterious influence on the 
societies' interests, completely broke down during the enquiry. 
Moreover the individual members are everywhere in a minority (vide 
statement appended). I therefore refuse to subscribe to the doctrine 
that central banks' interests are in any manner adverse to those of the 
societies. I am also unable to agree with the view that the depart- 
mental inspector is a better alternative to the central bank's inspector 
to step in when the unions and federations fail. These departmental 
men do not possess the status and equipment necessary to make them 
real teachers and advisers of the co-operative organizations. Their 
constant interference with the work of the unions and of the societies 
will, in my opinion, tend, to further weaken such sense of respon- 
sibility as there may be now left in them. It is not unlikely that 
their work may sometimes actually clash with that of the super- 
visory bodies. The department will blame the institutions if things 
go badly, and will claim credit if the societies and unions work well. 
Further, the argument against the central banks taking up the 
supplemental and residuary supervision, namely, that it should be 
proximate and done by those having a community of interest, 
applies equally, if not with greater force, to supervision by the 
administrative inspectors of the department. The bulk of the 
evidence is against departmental interference in non-statutory 
functions. No doubt a few witnesses allowed their zeal for the 
federations to get the better of their co-operative principles when 
they said that they preferred official interference to central banks' 
supervision, when unions and federations failed to discharge their 
duties. But they do not represent the genuine co-operative opinion 
of the Presidency. Departmental supervision, which was largely 
exercised until recently, was not such as to inspire much confidence, 
and indeed there are some informed co-operators who attribute some, 
if not most, of the present troubles to that supervision. It is a matter 
for regret that the questionnaire was altogether silent about the 
departmental activities and gave no chance to the Committee of 
bringing those activities within the scope of its enquiry. The 
Committee was mainly occupied with the question of the numerical 
strength of the official staff. 

My third and last reason, which has indeed weighed with me 
most, is that the Committee's proposal does not help to solve the 
difficulties with which the movement is immediately faced, but on 
the other hand, it only aggravates them. In its laconic statement 
about the present financial condition of the movement, the Com- 
mittee states : u Anxiety is however felt on some matters, especially 
the increasing amount of overdues, and immediate steps should, 


we most strongly urge, be taken to remove it " (vide page 37). What 
the other matters are on which anxiety is felt, the Committee does 
not state. It is well-known that other serious irregularities, frauds, 
and embezzlements also exist in not a few organizations. What are 
those immediate steps necessary to remove the anxiety felt on these 
matters aijd who is to take them ? This, I presume, is an imminent 
problem with which the movement is at this moment confronted even 
according to the Committee. It was indeed this problem that led to 
the very appointment of the Committee. Let me state the character 
and magnitude of this problem before I point to the agency which 
can handle it. The financial condition of the societies, with reference 
to overdues, as analysed by the Eegistrar in his latest Annual Report 
(1926-27), discloses the disquieting fact that out of 9,515 societies 
so analysed, 2,015 societies exhibit overdues between 30 and 45 per 
cent of the demand, and 3,158 societies account for overdues of 60 
per cent and over of the demand, while 2,671 societies are dormant. 
It is thus evident that 75 per cent of the societies demand immediate 
attention. The position of the societies with reference to their 
vitality, as analysed in the answers furnished by 27 central banks 
to the supplemental questionnaire, unfolds the same tale. Out of 
the 9,333 societies affiliated to these 27 central banks, 998 have not 
borrowed subsequent to the initial loan; I,3fi3 societies have not 
borrowed for the last three years, and 1,613 societies have not 
borrowed for the last two years. These societies must now be con- 
sidered to be dormant.* The cessation of borrowing by societies 
from central banks, is a clear indication of their dormancy, for few 
societies have any deposits of their own to be lent out to their mem- 
bers. The recovery of the overdues cannot possibly be effected 
without a thorough investigation into the affairs of all the bad 
societies, and a prolonged and careful process of rectification and 
consolidation. The problem therefore reduces itself to this : what is 
the agency by which the rectification and consolidation of the dormant 
and semi-dormant societies are to be taken up, so as to ensure the 
speedy recovery of the huge overdues, and to restore the finances of 
the movement to a sound, stable, and secure position ? In other 
words, how are the financial interests of depositors, and of the 
central banks in which the depositors have placed their trust, to be 
effectively safeguarded ? 

Are the unions and federations, to whom the Committee points 
the central banks, now in a position to take " the immediate steps " 
which the Committee u most strongly " urges to remove the anxiety 
caused by the overdues ? It must be remembered that the central 
banks turn to step in comes only after the examination of audit 

* It is unnecessary to vouch for the strict accuracy of either sets of these figures quoted 
above, for they may include a few societies which, having been newly formed, have not yet 
started work, Such oases will be few and will not aftect my argument, 


reports which come in at the end of the year, by which time unions 
have had their chance and failed already. Another chance may be 
given them. What next is the problem ? It was frankly conceded in 
the evidence that even federations of long standing, like those of South 
Kanara, Salem and North Arcot, are unequal to the task. As for the 
unions, I am content to cite the testimony of the Kegistrar himself 
which appears at page 10 of the latest annual Administration Beport 
(1926-27): u It does not appear that the supervising unions on 
whom rests the responsibility tor the upkeep oC the societies' credit, 
have generally made any serious attempts to check the increasing 
overdues in spite of the advice tendered in the previous year's report 
that if this tendency is allowed to grow unchecked, it may lead to 
financial chaos ". I do not accept the plea that lack of adequate 
monetary help is the sole cause for their weakness. There are other 
causes to be remedied before they Qan come up to the expected 
standard. Assuming for a moment that financial troubles alone 
account for the dormancy of many of them, do the proposals of the 
Committee secure for them all the money needed to equip them for 
the task that immediately awaits them, namely, of undertaking the 
Work of rectification and consolidation of all bad societies ? On the 
Committee's financial proposals for strengthening the unions and 
federations, the average annual income vouchsafed to a union will 
be Us. 1,000 and to a federation, Es. 2,000. This income will be 
absolutely insufficient to enable the federation to embark on a scheme 
of rectification and consolidation and has to be supplemented by 
liberal grants by the State and the central banks. Crediting the 
State and the central banks with the best of intentions, the monetary 
assistance which they are likely to render to the unions and federa- 
tions, is not likely to be of that magnitude which will enable them 
to create a non-official staff, adequate to cope with the work that it 
is expected to launch upon, before it is too late to save the move- 
ment. I adduce these facts merely to show that the most enthusiastic 
and optimistic organiser cannot make bodies potent factors for 
safeguarding the financial interests of the movement before some 
appreciable time elapses. I am not obsessed by their past history, 
nor do I overlook their potentialities for tho future under altered 
conditions. But I must indeed be extremely over-credulous to 
believe that the Committee's recommendations will at once transform 
them into efficient bodies, and that the central banks and others 
interested in the financial stability of the movement have merely to 
possess their souls in patience for a short while. 

Now let me take a rapid survey of the efforts that were being 
made by co-operators in this Presidency, before the Committee was 
appointed^ and examine how far the recommendations Prom which I 
dissent fit in with those efforts. The Fifteenth Madras Provincial 


Co-operative Conference (1927) voted for the unions, federations and 
central banks co-operating to create a large body of efficient and 
trained officers consisting of two classes, one corresponding to the 
grade of union supervisors and the other of a higher calibre, to 
exercise intelligent supervision and to immediately embark on a 
scheme of rectification, consolidation and expansion on correct 
principles of co-operation, besides carrying on the much-needed 
educative and propaganda work. The central banks began to move 
on similar lines even earlier. The Central Banks' Conference at its 
session held on 8th May 1926, passed the following resolution : 

" This conference of representatives of central banks is of opinion 
that, considering the growing losses in the village societies and 
considering the increasing overdues both in the village societies and 
from the village societies to the central banks, the time has come 
for a thorough investigation of the state of societies individually. 
# # * p or this purpose, the central banks will consider the 
desirability of appointing a special staff to help the unions, with 
a view not only to investigate the state of affairs of societies, 
but also to take necessary action in the matter immediately." 

At its next session held on October 2nd, 1926, it reinforced its 
resolve to urge upon the central banks the necessity for an immediate 
investigation into the condition of societies and supplementing the 
supervision work of the unions in that connection. These resolutions 
were worked by some of the central banks. Salem, Chittoor, Kistna, 
Kurnool, Kumbakonam, Tanjore, Malabar and Srivilliputtur appoint- 
ed additional staff to carry out the programme. In some other 
districts, namely, Chingleput, North Arcot, Coimbatore, South 
Kanara, and Madura, the work was taken up by the federations 
with the concurrence and assistance of the central banks. East 
Godavari also seems to have been moving on the same lines. The 
Madras Central Urban Bank actively encouraged these schemes for 
rectification and consolidation by offering some financial facilities to 
the central banks which have signified their consent to carry them 
out, either by their own agency or through the medium of the 
district federations. The answers of the central banks to the supple- 
mental questionnaire bear out that the central banks have all 
recognized the value of the lead given by the Madras Provincial 
Co-operative Conference, the Madras Central Urban Bank, and the 
Central Banks' Conference, and are prepared to follow it. Efforts 
along these lines have the supreme merit of enabling the financing 
and the supervising agencies to co-operate in creating a body of non- 
official staff competent and ready to undertake the work of rectification 
and consolidation. 

Endeavours thus set on foot after much deliberation have how- 
ever already received a marked set-back by the open hostility of the 
department towards the central banks' participation in the work of 


Supervision, rectification, and consolidation. Indeed in the very open 
ing sentence of his written answers to the questionnaire, the Eegistrar 
characterizes supervision by the central banks as one of the dangerous 
tendencies of the movement, which has to be checked. He empha- 
sized and elaborated the point in his oral evidence. It has become 
a recognized cult of departmental officers to preach the. doctrine 
that the central bank, as an outside body, should have no part or lot in 
supervision, except so much of it as may be involved in inspection, 
pure and simple. The recommendation of the Committee on this 
point undoubtedly proceeds on lines of least resistance so far as the 
department and the left wing of the federationists are concerned. I 
feel that the inevitable result of it will be to accentuate the existing 
differences. . The antagonisms between the federation and the central 
bank which have developed so soon (within the first three or four 
years of the creation of the federation) are not imaginary ; and if 
they are so intense now, what they will be in the next few years, 
will be difficult to speculate, unless the present tendencies are 
checked. The way to check them does not lie along the lines 
adopted by the Department and the Committee. The right path, as 
I already pointed out, lies in the direction of conceding the right of 
all non-official agencies to share the non-statutory functions, and of 
encouraging the central bank and the federation to combine to 
organize a superior and well-trained staff for field work. Once a 
ban is placed on the central bank's participation in this enterprise, 
the chances of harmonious team work between the financing and 
supervising agencies are destroyed. The only course that is left 
open to the central bank will be to refuse to finance the societies and 
resort to courts or arbitrators for recovery of overdues in areas where 
no adequate facilities for the safeguard of its financial interests exist. 
This extreme measure will not only lead to open hostilities between 
the bank and unions and the federation, as it has already done in 
some places, but will also severely hit the societies themselves which 
are the pivot of the movement. The consequence of non-official 
agencies, which are primarily and exclusively interested in the 
efficiency of supervision and control over the several organizations, 
thus quarreling over the division of functions is to acquiesce in 
some at least of those functions passing into the hands of a third 
party, the department, which normally ought to have only the 
ultimate and not the immediate responsibility for supervisory control. 
There is no doubt that the differences between the non-official agencies 
are fully exploited for the purpose of making all of them more 
and more dependent upon the department in actual working though 
not in apparent theory. If these differences persist, as I am afraid 
they will, when the inclinations of the department and the recom- 
mendations of the Committee are adhered to, the entire control and 
supervision should once again inevitably pass into the official hands, 


or the movement should be wound up. The department would have 
been well advised if it .stood for strengthening supervision by pro- 
perly and effectively training supervisors and higher grade inspectors 
employed by non-official agencies, by giving subventions to super- 
visory bodies as in Bombay and the Punjab, to enable them to 
recruit batter men and by other similar methods, instead of asking 
for an inspectorate to run a parallel administration for the discharge 
of the functions which legitimately pertain to the non-official bodies. 

Suppose we waive all our objections to the department taking 
cc immediate steps ", which the Committee u most strongly " urges, are 
necessary to remove the causes of the anxiety felt by co-operators, can 
the department do it ? The palling up of these societies is not, in my 
opinion, possible by departmental activities. To achieve the end in 
view, something more than the sporadic and mechanical activities 
of a department of the State is required. An intimate, intense and 
continuous personal interest must be infused into the work of rectifi- 
cation. The personnel of the department must vary from time to 
time, while the immediate work before us must be spread over a 
number of years. And, too, a certain idealism must pervade the 
activities of those engaged in the work. After all is said and done, 
the officials can only come in as outsiders. The real difficulty is 
that the factors of supervision, namely collection, distribution, 
book-keeping and remittance are so idealistic that men without a 
stimulus behind them are not capable of attending to them with an 
exalted sense of duty. Periodical preaching in a pontifical manner 
does good neither to the body nor to the soul, much less to business 
and book-keeping. The fact of coin being behind the duties ought 
to serve as a sort of healthy stimulant to the central banks in the 
discharge of such duties. I am not therefore convinced that the 
departmental agency has any claim whatever to be preferred to the 
central banks in the matter of safeguarding the financial interests of 
the movement. 

A word as to what I conceive to be the true place of the central 
bank in the movement must be said before I conclude. The time 
has arrived for co-operators to come to definite conclusions on 
the matter, for future lines of development largely depend upon 
them. If, as the King Committee who reported on the working of 
the movement in the Central Provinces said u The Central Bank is 
in reality only a surety or intermediary taking commission for its 
services " in attracting money from depositors and passing it on to 
the societies, let it be made clear once for all. The depositors and 
investors of money in the central banks will then know where they 
are and where to look for the safety of their money. If, on the 
other hand, it has any responsibility for the financial stability and 
soundness of the village societies which are almost exclusively financed 


by it, then do not make it dependent, for safeguarding the financial 
interests of the movement, upon some one else to the extent of 
depriving it of the power to step in, even when the agencies on whom 
it is asked to depend for such safeguard fail to come to its rescue. 
The position of the department in this matter is illogical in theory 
and dangerous in practice. Mr. Wolff is often quoted by those who 
advocate the complete divorce of supervision from finance. In my 
opinion, they misread Mr. Wolff. In his scheme, the attraction of 
money, the watching over its employment, the enforcement of its 
recovery, and the employment of idle balance are done and ought to 
be done by the society itself. His central bank is merely a balancing 
centre and a clearing house for the societies. What use is it then, 
may I ask, to seek to apply Mr. Wolff's theories to conditions which 
are diametrically opposed to his fundamental assumptions ? A dis- 
passionate study of the history of the development of central banks 
in this Presidency shows that besides attracting local capital, they 
were also expected to actively supervise the societies, to watch if 
their loans were safe. The theory which prevailed during the 
evolution of these banks seems to have been that, in any scheme of 
supervision, the existence of financial community of interest between 
the supervising agency and the supervised bodies should be deemed 
essential. In the realization of this principle in co-operative finance 
and administration, it was intended that 'each central bank should 
undertake the supervision of societies by maintaining a special staff. 
In the above statement of the central banks' development, I have in 
effect quoted the words of a note circulated by the Department to 
the Committee on the subject. The later development of the local 
supervising unions and the final acceptance by co-operators of the 
principle that u co-operative practice as well as co-operative conve- 
nience pointed to the local supervising union as the body which was 
best capable of conducting supervision at close quarters " no doubt 
justified, nay, necessitated, a certain departure from the original 
plan on which the central banks were developed. But no principle 
or practice can be urged to carry that departure to the extent of 
denying to the central bank even an ultimate and residual power to 
safeguard its financial interests. Let it not be forgotten that in 
reality, the debtor societies and the creditor bank do not stand in 
the relation of defaulter and critic, but are organizations whose 
interests are indissolubly bound up, as those of men moved to a 
common purpose and fellow pilgrims in search of a common end. 

II. Publication of Evidence. The decision of the Committee not 
to publish the evidence, written and oral, is in my opinion very 
unfortunate. The benefits of an important enquiry conducted at 
the expense of much public money and time, will, to my mind, be 
greatly lost to the people if they are supplied merely with a report, 


without the materials on which it is supposed to be based. By their 
very nature, some of the problems under investigation were either of 
an acutely controversial character or were capable of more than one 
solution. The evidence on them was in consequence bound to be, 
and was as a matter of fact, conflicting. Nevertheless, within the 
limits that the Committee set to its report, even an attempt could 
not be made to summarize the conflicting views or the effect of the 
evidence adduced in support of them in relation to any such problem. 
Co-operators are not likely to accept the recommendations of the 
Committee as the last word on any one subject on which they bear. 
In these circumstances, I feel that all those who are interested in 
subjecting the report to a careful examination will be placed under 
a serious handicap by reason of the evidence being made wholly 
inaccessible to them. I hope the public may still be able to persuade 
the Local Government to publish the evidence, notwithstanding the 
recommendations of the majority of the Committee to the contrary. 
Even after this report becomes out of date, as it is bound to in a 
decade or so, the evidence now collected will still be a useful and 
interesting record of considered co-operative opinion and may furnish 
valuable materials for a future enquiry. 

I am in substantial agreement with all the other conclusions of 
the majority of the Committee. 

23rd January 1928. V. KAMADAS PANTULU. 




Statement showing distribution of share capital in central banks between 
individuals and co-operative societies as on 30th June 1927. 



Serial number and name 


of the bank. 


paid up. 


paid up. 

* paid-up 
share capital. 




1. Aska 






2. Berhampore 






3. Vizianagram . . 






4. Cocanada . . 






5. Kajahmundry . . 






6. Ramachandra- 







7. Amalapuram . . 






8. Ellore^ 






9. Masulipatam 






10 Bezwada 






11. Quntur 






12. Nell ore 






13. Knrnool . . 






14. Hospet 






15. Anantapur 






16. Ouddapah 






17. Chittoor 






18. Salem 1 *. . 






19. Coimbatore 






20. Malabar 






21 % South Kanara . . 






22. Conjeeveram . . 






23. South" Arcot 






24. Kumbakonam . . 






25. Tan j ore. . 






26. Trichinopoly 






27. Madura, . 






28, Srivilliputtur . . 






29. Tiimevelly 






30. Vellore 






31. Christian C.B. 






Total . . 









I have to dissent on a few matters including what the other 
members of the Committee consider the most important of all their 
proposals. At the outset I ought to refer to two features of the 
report. The problems we had to tackle are dealt with more from a 
commercial standpoint rather than the co-operative. While I agree 
that the co-operative institutions should be managed on business 
lines, the special features of these with reference to the purpose for 
which they are organized and the co-operative method that is, or 
should be, followed are not kept in view. The second feature is that 
past experience and the object to be aimed at have not received the 
sanio attention as a priori reasoning in several matters, 

I. Division of agricultural loans into short and long-term loans : 
my colleagues consider this the most important of all their proposals 
and say that the failure to distinguish between them is the most 
unsatisfactory feature of the co-operative movement at the present 
time. I do not agree, 

They propose a division which has reference only to the time 
of payment, viz., between those payable after the next harvest and 
those payable in a number of years. 1 he purpose of the loan is not 
taken into consideration. They have to admit that where the divi- 
sion is made, as in the Central Provinces and Bengal, emphasis is 
laid on the purpose of the loans They also admit that even though 
the Central Provinces Committee, of which one of us who laid great 
emphases on this point was a member, recommended the division and 
it was accepted by the Government, it does not appear to have been 
adopted in practice. 

Purposes like the purchase of cattle for ploughing and drawing 
'water, deepening of the well, and the purchase of costly manure are 
as much part of the cultivation expenses as any others. These are 
wanted very urgently in many cases. Delay in supplying the funds 
necessary for these will have even more serious consequences than 
the delay in supplying money for other cultivation expenses. These 
have to be paid for out of the harvest as much as other cultivation 
expenses, but the payment in these cases will have to be made from 
a number of harvests and not from one harvest. The loans given 
for meeting these cultivation expenses are differentiated from the 
short-term loans proposed by my colleagues. 

My colleagues do not want the division for merely statistical 
purposes. They complain that " the financial and economic implica- 
tions and benefits of such a division do not however seem to have 


been emphasized or kept in view by the department or by any of the 
co-operative organizations ". What is at the back of their mind is 
an assumption that in the past short-term loans have been sacrificed 
to favour long-term loans. There is no ground for this assumption. 
The evidence is unanimous that no short-term application which was 
otherwise satisfactory has been turned down. As a matter of fact 
there is more than enough money in the movement to meet all the 
present requirements, and the problem is to find outlets for the very 
large balances with the central banks. The only complaint we have 
heard in some places is that on account of the delay in sanctioning 
loans, the loans are not granted in time to meet the needs. To meet 
this the system of forecasts is suggested and I entirely agree that 
this will facilitate the business in the societies. I will go further 
and say that these forecasts should be prepared for all the loans 
which can be foreseen and not only for the short-term loans. Prompt 
sanctioning and disbursement of loans is necessary in all cases and 
I do not see why, if a need can be foreseen, it should not be included 
in the forecast rather than to wait until it actually arose and then 
pass through all the process which ex hypothesi involves delay and 

The second assumption made by my colleagues is that there is 
some special efficacy in meeting the short-term necessities of mem- 
bers. The outside money-lender does not make any difference 
between short-term loans and long-term loans except when immovable 
properties are mortgaged. It may be remarked that the professional 
money-lender fights shy of mortgages of immovable property and 
almost always lends on pro-notes. So unless all the needs of the 
ryot are met he will have to go to the money-lender and be under 
his control. The purpose of the loan and the time of re-payment 
have nothing to do with the terms imposed by the money-lender. 
They depend upon the time when the loan is required, the credit of 
the borrower, and the urgency of his requirements. Once the ryot 
borrows from the money -lender he has to subject himself to all the 
conditions regarding the sale of the produce through such money- 
lender wherever that practice exists. So differentiating between the 
short-term loan and the long-term loan and taking special steps 
to grant the short-term loans alone will not save the ryot. 

The main object of my colleagues is to utilize this differentiation 
for the purpose of restricting the loan of money obtained as fixed 
deposit for a year or less and money obtained as overdraft from the 
Imperial Bank or the Madras Central Urban Bank only to these 
short-term loans. This is neither necessary nor desirable. Evidence 
is unanimous that, though fixed deposits are made for one year, the 
major portion of them are always renewed. New deposits are always 
coming in to take the place of the old ones. Even the most conser- 
vative witnesses have said that no risk will be run if 50 per cent of 


the deposits for one year and less are utilized for long-term loans. 
After all the loans for cultivation expenses amounted in the last 
year only to about to one-sixth of the total amount given as loans. 
As a larger proportion of the amount loaned in previous years for 
short-terms would have been repaid than that loaned for long-term 
periods, since the latter is paid in instalments, the proportion of 
the short-term loans in the total outstanding loans will be much less 
than one-sixth. To concentrate attention on short-term loans and 
make or suggest arrangements which are likely to affect the other 
loans is not good policy in the interest of the movement, I fear the 
needs of our ryots and the history of the movement in our Presidency 
aro not taken into consideration in this suggestion of my colleagues. 
The conditions of other Presidencies are not always a safe guide in 
such matters. The adoption of the suggestions of my colleagues 
would spell a great restriction in the utility of the movement, and 
the withdrawal of facilities which have been provided for with great 
difficulty and labour of so many years by enthusiastic and capable 
workers, both official and non-official. 

The system of giving short-term loans only is being tried in 
Ganjam and Vizagapatam districts. Wherever we went in those 
districts the people complained that their needs were not all met and 
that unless all their needs are mot they will not be benefited much. 
It was said that the dormant state of many of the societies was due 
to the fact that only short-term loans were given and people were 
not satisfied with them. I do not believe that anybody will 
seriously contend that the movement is specially good in these dis- 
tricts. My colleagues seem to think that if only short-term loans 
are given the overdues will be less, The example of North Arcot 
where the short-term loans were encouraged would show that the 
period for which a loan is given has nothing to do with overdues. 
We did not visit Tinnevelly ; so I am not in a position to say how the 
movement is working in that district. In Grodavari, we have a 
number of young men who devote their life for the betterment of their 
fellowmen. With such men any movement will succeed anywhere. 
I do not think the good working of the movement in that district has 
anything to do with the fact that short-term loans are given largely 
in that district. It should also be borne in mind that in delta dis- 
tricts there will be a large demand for short-term loans for cultivation 

I do not think it is advisable to impose on the rural societies 
the keeping of any system of complicated accounts. Many societies 
are not able to keep the accounts which are prescribed at present 
and they require outside help for the purpose. They have very few 
transactions and it does not seem to be necessary that they should 
keep two separate sets of books or pro-notes. They are 


now sending separate applications for loans they want for different 
periods, and the purposes for which the loans are wanted are 
always given in the application forms. The central bank has already 
got information as to the purpose and the periods for which the 
loans are wanted. If considered desirable, the central bank may 
make arrangements to show the short-term and long-term loans 
separately. I do not think that differentiation of the short-term 
deposits and the long-term deposits will be a guide to base any action 
on them. As I have said, the evidence is practically unanimous that 
most of the deposits are renewed. So they are for a year or less only 
in name. The practice and experience of commercial banks will not 
be a safe guide in dealing with co-operative organizations whose 
working is entirely different. It is often forgotten that there is a 
lot of speculation in the working of commercial banks, whereas the 
Co-operative organization depends ultimately on the unlimited 
liability of the members in the primary societies, and the maximum 
borrowing power is fixed at one-eighth of the net assets of the 
members. In some of the remarks made by my colleagues they seem 
to suggest doubts about the sufficiency of this ultimate security, 
especially when they refer to the withdrawal of members and the 
alienation of their properties. They forget that in a village these 
things will be known to the other members at once, and they will 
take prompt measures to stop them, as otherwise they will themselves 
suffer. I have not heard of a single society which had to suffer by 
such withdrawals or alienations. When the maximum borrowing 
power is fixed so low as one-eighth of the net assets, there is ample 
margin for all unexpected happenings and many of the societies do 
not borrow up to this maximum. Under these circumstances, the 
application of the precautions that are necessary in commercial banks 
is not necessary in the co-operative movement and mere a priori 
reasoning should be qualified by facts of experience. 

If special facilities are given for short-term loans the only result 
will be that the money needed really for long-term purposes will be 
included in the applications for short-term loans by manipulating the 
purposes to be mentioned in the application. The result of this will 
be that when the time comes for repayment, the borrower will have 
to ask for extension for a part or whole of the debt. If the exten- 
sion is not given overdues will increase. So the division will only 
result in showing real long-term loans as short-term loans. 

If the loans are really taken for a year or two there is no neces- 
sity for registering the bond or the pro-note. Where extension is 
given beyond three years, a proper acknowledgment will have to be 
obtained or a fresh pro-note taken. All pro-notes for three years and 
more may be asked to be registered. The fact that at present short- 
term pro-notes are also registered unnecessarily is no argument for a 


division. The commercial banks are prepared to negotiate negotiable 
securities which mature within six months. I understand it is 
proposed to ask for the extension of the period to one year. This 
does not mean that the pro-note itself should at its inception be 
repayable in six months or one year. All pro-notes which mature 
within six months or a year of the time when money is wanted can 
be negotiated, irrespective of the time that has passed since the pro- 
note was executed. I take it that the negotiation of pro-notes is 
only a supplementary method of obtaining money, and not the main 
source for it. In any case the facility for negotiation of the pronote 
should not be made the controlling factor in working the co-operative 

On the whole the suggestions made by my colleagues in this 
matter are fraught with serious consequences to the future of the 
movement in this Presidency and I will therefore strongly recommend 
that they should not be accepted. 

2. While we generally did not go into minute details of things 
to be done at a future date and restricted ourselves to recommenda- 
tions of a general nature in such cases, in some matters details were 
sought to be embodied. One such case was the details of the 
enquiry to be held when reconsidering the question of the retention 
or elimination of the individual shareholders in the central banks. 
As we have not enquired into the details of the enquiry, or 

sufficiently considered the matter, I cannot subscribe to the details 

/ ' 

mentioned in the report. 

3. In the Madras Central Urban Bank the question of the 
representation of individuals on the board of management has, we 
were told, recently been considered and settled. There seems to 
have been a difference of opinion in the bank and one view has 
secured the majority. We were first not inclined to say anything 
about it. But when the final draft of our report was considered one 
of the members suggested that the view that was worsted at the 
bank meeting should be supported by the Committee in their 
report. I thought this was unfair as the other side was not heard 
and we had at the previous meetings taken a different vuew and we 
were only passing the final draft, embodying the conclusions come 
to earlier. But my colleagues took a different view. Considering 
the financial interest of the individuals, they hold shares to the 
value of Es. 18,400 as against Es. 5,77,370 worth of shares held by 
central banks and societies, and as the provision made of five 
members was sufficient to bring in the outsiders wanted to give 
strength to the bank and the movement, and as most of the 
representatives of the central banks were themselves individual 
shareholders of those banks, I thought it was not necessary to 


recommend any change in the constitution which was framed only 
recently. I do not feel that any case has been") made out for 
increasing the representation of the individual shareholders. 

4. "We have recommended a large addition to the Government 
audit staff. "We have also recommended a large addition to the staff 
of supervisors employed under non-official agencies. We have made 
recommendations for the proper training of both Government and 
non-Government staff. We contemplate the work of supervision to 
be undertaken and efficiently done by the non-official organizations 
mainly through their paid staff. "We have also recommended the 
employment of a staff of three inspectors in each district for adminis- 
trative work until the unions and federations perform the work 
efficiently. When and where they work efficiently the staff can be 
reduced by one inspector. We have made a recommendation to 
appoint an officer to investigate the possibility of reducing the number 
of returns, reducing and simplifying the registers and other records 
kept, and to consider what powers now exercised by the Kegistrar 
can be delegated to the District Officer. We have recommended the 
appointment of better qualified and more experienced officers as 
District Officers and the deletion of the intermediate office of the 
Deputy Eegistrar for a group of districts. When these recom- 
mendations are accepted I contemplate the work in the District 
offices will be very considerably reduced. I do not think there will 
be any necessity for the appointment of a highly paid personal 
assistant to the District Officer. In case it is considered desirable to 
place the work of audit in the hands of the assistant, it will be quite 
ample if this assistant is appointed in place of the present manager or 
head clerk who is a senior inspector. The officers have always got 
a tendency to ask for more staff and when the staff is sanctioned it 
will somehow find work to do. Before any staff is sanctioned, the 
necessity for it will have to be very carefully scrutinized. I fear 
the appointment of a personal assistant will lead to the appointment 
of some clerks and peons under him specially. -So it is better to 
call him, if he is to be appointed, an office manager and he may be 
asked specially to keep the correspondence relating to audit in his 
personal charge. More than that seems to me to be unnecessary. 

23rd January 1928. T. A. EAMALINGAM. 



I agree with all that is said in the report, save the proposal 
regarding fluid resources, on which two of my colleagues and I have 
written a minute of dissent. In this note I wish to amplify some 
of the contents of the report, and to add a little fresh matter. 

In paragraph 24 a comparison is made between the Government 
expenditure on the co-operativo movement, per member of all 
co-operative organizations, in Madras and in the other major provin- 
ces. It may be argued that a comparison of the cost per member 
alone is insufficient, and that other impoitant figures showing the 
size of the movement in each province should also have been taken 
into consideration. We tried in vain to do so ; unfortunately the 
statistics published by each province are in many cases compiled on 
different methods of calculation, and we could find no other method 
of comparison than that we adopted. Similar difficulties were 
encountered in dealing with reserve funds (paragraph 26) and over- 
dues in primary societies (paragraph 31). It is particularly 
unfortunate that no exact comparison between the position in 
Madras and in other provinces is possible in the latter very important 

In paragraph 29 reference is made to " the sudden withdrawal, 
without due notice, of the department from supervision." The words 
are not very happy, but, as they are commonly used, I let them pass. 
What is really intended to convey is that, when Government practi- 
cally abandoned supervision to non-officials a few years ago, with 
the full consent of the latter, no steps were taken, either by Govern- 
ment or non-officials, to satisfy themselves that the latter were 
adequately equipped, whether in knowledge, financial resources, or 
staff to undertake that .supervision. In the same paragraph we say 
that the danger resulting from the formation of societies without 
proper enquiry or preparation must be avoided in future. I direct 
particular attention to the remark. Much of the present unsatis- 
factory state of affairs is due to the formation of only too many 
societies in recent years without adequate preparation : many of the 
members joining such societies had not the least idea of what co- 
operation meant, what the term unlimited liability involved, or even 
the source of the money they borrowed. I consider that, while the 
formation of new societies should not absolutely cease for the 
present, the efforts of all concerned, whether officials or non-officials, 
should for the present be directed far more to rectification, or, if need 
be, the liquidation of many of the existing societies; than to the 
formation of new societies, 


Our recommendations on the matter of non-credit work will be 
found in paragraphs 34 to 39. In this connexion I find that the 
Bengal Co-operative Department recently employed a business man 
for one year to assist in the development of sale societies generally, 
and the Kegistrar in Bengal tells me that the appointment was amply 
justified. I wished that our report should contain a definite recom- 
mendation that similar action should be taken in Madras, but my 
colleagues were not convinced of its necessity. I still think the 
proposal good, and recommend it to Government for consideration. 
The appointment would be for only one year, and therefore not 

Our proposal in paragraph 42, that Government should for five 
years guarantee the interest on the debentures issued by the central 
land mortgage bank, will be rightly subjected to close examination and 
criticism. But I wish to point out that this is already being done in 
at least one other province of India. Unless some such action is 
taken, I see but little possibility of the central land mortgage bank 
selling its debentures to anything like the extent required, if sufficient 
long-term money is to be raised to extricate an appreciable propor- 
tion of the cultivators of the Presidency from their burden of prior 

When dealing with the question of Government staff (paragraph 
45) we considered the desirability of appointing, as in the Punjab, a 
banking advisor to the Eegistrar. We decided however against the 
proposal, mainly on grounds of expense. But another proposal in 
this connection was put forward, which would involve practically no 
expenditure. It did not meet with my colleagues' approval, but I still 
recommend it for consideration by Government : the amount of money 
locked up in the co-operative movement in the Presidency is now 
very large. The proposal is that Government arrange to have at 
their disposal the honorary services of a banking expert on financial 
matters. If the gentleman once selected be satisfactory, he should 
not be changed without adequate cause, wherever he be posted in the 
Presidency. There are, I am confident, many bankers in the Presi- 
dency interested in co-operative work, who would accept the post, 
and willingly offer advice on financial problems submitted to them 
from time to time by the Eegistrar. I do not think that the manage- 
ment of his bank would object to the gentleman selected undertaking 
this | work, which would be done by correspondence. 

In* the same paragraph we recommend, inter alia, the appointment 
of three inspectors per district for work other than audit and non- 
Credit work. Of those one would be employed on liquidation work, 
and the remaining two on ordinary administrative work. For the 
latter work, I personally prefer three to two. However much unions' 
and federations are strengthened as we recommend, and supervision 


entrusted to them, I think the Eegistrar will for some years to come 
find ample work for three administrative inspectors per district. As 
a minor point, the Eegistrar should have full power to post his inspec- 
tors, whether employed on audit, liquidation, non-credit, or ordinary 
administrative work, wherever he chooses within the Presidency, so 
long as the .scale sanctioned for it as a whole is not exceeded. Thus 
he may find it desirable to concentrate four or even six administrative 
inspectors in one backward district, cutting down the staff in good 
districts proportionately. 

Where we make no specific recommendations on the matter of 
staff, our intention was that all the staff not mentioned should 
continue as at present : e.g., the inspectors employed on non-credit 
work should remain. I attach particular importance to the 
continuation of the appointment of Joint Eegistrar. 

The burning question as to whether supervision generally should 
be entrusted to central banks or federations one of the most 
important questions we had to consider gave us much thought. 
Save on one aspect of the case we fortunately arrived at a unanimous 
conclusion in the matter : see paragraph 4i. So important is the 
conclusion, I reproduce it : 

Audit, inspection, and supervision should be clearly defined 
and distinguished. Audit should remain with Government. Many 
persons invest their money in the movement relying on the Govern- 
ment audit. Inspection should be not only the right, but the duty 
of the banks: but it should carry with it no power of actually 
putting right defects in primary societies brought to light at in- 
spection. That power is part of supervision, and should vest in the 
union and the federation concerned. A bank should therefore ask 
the union or federation to rectify specific defects in the working 
of specific primary societies. Should the union or federation fail 
to do so, the bank should address the Eegistrar in the matter. 
The .Eegistrar when addressed by the bank, could, if he desired, ask 
the bank itself to rectify the defects : but he is of course under 
no obligation to do so. 

I consider that this solution will work satisfactorily, if the incomes 
of unions or federations are increased, and the banks given represen- 
tation on the federations, as we recommend. J sincerely trust that 
all concerned will make every effort that tliis happy result may 
follow, and that the unfortunate feeling in the matter, in some cases 
bitter, and in a few cases personal, that at present exists, will rapidly 
subside. Mr. Eamadas Pantulu is, I understand, writing a minute 
of dissent on some of the points just mentioned. 

That supervision should not be entrusted to banks, I personally 
have no doubt whatever. In most provinces of India supervision by 


banks has not been successful, The present controversy on the 
question in Madras is largely due, I consider, to the fact, which we 
have tried to bring out in paragraph 4, that some banks, at any rate, 
were brought into existence with the definite object, not only of 
financing, but also of supervising, affiliated societies, But it is 
important to remember that, when these banks first appeared, 
federations had not been thought of. With two of my colleagues 
I examined in some little detail the rectification of bad societies which 
had been carried out on a fairly large scale by one central bank : 
I was not favourably impressed by it, The handing over of super- 
vision to banks would, I consider, undoubtedly result in the immedi- 
ate extinction of the federations, and in a lapse into suspended 
animation, if not worse, of many unions. 

In our recommendations on supervision fund in paragraph 44 we 
urge the necessity of Government assisting backward districts by 
making a contribution to the supervision fund. I attach great 
importance to this. No federation can do any useful work without 
adequate funds, and much of the criticism at present levelled against 
the federation as a useless body, the u fifth wheel to the coach ", and 
the like, falls to the ground when it is remembered (i) that feder- 
ations have only been in existence a very short time, and (ii) have 
been hampered, in most cases, by the inadequacy of the funds at their 
disposal. I do not however visualize the necessity of Government 
subsidizing federations for ever. Probably an annual subsidy of 
Es. 12,000, in all, for the first five years, and then a decreasing amount 
for the next five years, should be sufficient. Much depends on the 
progress made iii the interval. 

I find that in paragraph 50, dealing with arbitration, liquidation 
and execution, we omitted to mention that in one district the Col- 
lector gets a quarterly statement from his Tahsildars showing the 
progress made in the execution of decrees sent to them for the 
recovery of ct co-operative dues". His action has resulted in far more 
attention being paid to this matter by Tahsildars than in most 
districts. I recommend it for general adoption. 

To the question of education and training in co-operative prin- 
ciples of all concerned, whether officials or non-officials, which are 
dealt with in paragraph 51, too much importance cannot be attached. 
It is impossible for the co-operative movement to flourish, unless all 
concerned, down to the most ignorant and most recently joined 
member of a village society in a backward district, know at least 
some of the elementary principles of co-operation, And it is 
generally agreed among co-operators all over India that for such 
education and training, however much the co-operative movement 
generally be " de-officialized ", Government must oe to a great extent 


I regret see paragraph 54 our inability to frame an accurate 
estimate of the cost of our proposals. Some papers on the matter 
however have been given to the Begistrar, which -should assist him 
in doing so. 

As a minor point, I recommend that Government examine the 
possibility of instituting a permanent Board of Economic Enquiry, 
as in the Punjab. Many enquiries into specific matters connected 
with the economic life of the Presidency are now made from time to 
time by various bodies or individuals, but no permanent organization 
exists to supervise those enquiries generally. Such an organization 
would be provided in a Board of Economic Enquiry. 

Finally I desire to apologize personally for the disconnected and 
ill-arranged character of much of the report : for this, excuse may 
perhaps be found in the fact that the time at our disposal was limited. 
The paper is also unduly long : we had not sufficient | time to write 
a short report. 

0. A. H. TOWNS END, 
25th January 1928. President, Committee on Co-operation. 




I wish to go somewhat further than my colleagues in making 
a suggestion for rendering the work of the 4 nation-building depart- 
ments ' more effectively co-ordinated. I &o so because practically 
every non-official witness in every district desired much improve- 
ment in the present measure of co-ordination. My own experience 
as a rural worker and also as a farmer accords with the same view. 
Moreover I have had the opportunity of studying the method of 
co-ordination adopted in some foreign countries. 

What I am going to suggest is largely based upon what I have 
observed as the duties that are ordinarily performed by what are 
caDed County Agents in America. In our country also a start has 
been made in this line. I refer to what Mr. F. L. Brayne, I.C.S., 
Deputy Commissioner of Gurgaon district in the Punjab, has begun 
to do in his area. He has started a Eural Community Council, and 
on it he has laid the responsibility for a comprehensive service to 
the villager along something like fifteen different lines of public 
utility service. The principle on which be has based his organiza- 
tion may be best stated in his own words : 

cc Every department of Government engaged in a village 
work must work hand in hand with each other, with the district and 
the district authorities, if we are ever going to achieve any really 
big results. Government has the money and the technical know- 
ledge, the District Board and the local authorities have the local 
knowledge and experience and are in daily touch with the villagers 
and can command their good will. 

It is no use for any one department or authority setting out 
by itself to uplift the villages. All must work together ". 

Our Committee itself has found it necessary to indicate one definite 
line of co-ordination. I refer to paragraph 51. The Committee first 
recommended motor vans to the Co-operative Department for propa- 
ganda work. Then when it learnt that the Agricultural Department 
had a similar project under consideration, it immediately felt how 
valuable it will be if the Co-operative Department did not have a 
separate fleet but co-ordinated with the Agricultural Department in 
the matter. The recommendation was not merely for economy, but 
much more so for efficiency. Similarly our Committee found it neces- 
sary to recommend importation of experts from the sister departments 
of Agriculture and Industry, for attention to certain large develop- 
ments in the co-operative movement. Also our Committee has gone 


so far as to recommend that graduates in agriculture be recruited for 
co-operation work among depressed class people, who need so much 
of foundation building in their economic life before they can at all 
provide material for the ordinary co- operative movement. Therefore 
the suggestion that I am going to make is only in the nature of 
carrying to a further stage the ideas which have been working in the 
minds of many people. The fact is, there are now several Govern- 
ment departments working laboriously and faithfully each in its 
own way for the uplift of rural India. Human nature is such, and 
generally speaking the organization of official routine is so relentless, 
that there is not that human co-ordination which does obviously 
seem to the outsider to be demanded for reasons of greater 

The Cominittee has recommended occasional conferences. To 
my mind a mere suggestion of a conference is not likely to go very 
far. The duty is not located on any one in particular to call the 
conference, there is no responsibility to report the benefits of such 
conference, nor is there any finance provided for making the confe- 
rences frequent or effective if they prove to be valuable. An 
occasional conference will be good, but very far from effective in 
achieving that intimate co-ordination which is necessary for helping 
the present practical needs of the farmer. The farmer's problems 
do not arise in isolated compartments ; they arise as a complicated 
whole. Their solution is seldom effective when attended to by 
isolated agencies. Where the man is intelligent enough he is able 
to co-ordinate for himself the services* of various departments in his 
own way, but the average Indian ryot is unable to do so. When he 
has saved himself from Scylla it is not often that he escapes from 

For these reasons I recommend that in each district a Develop- 
ment Board be constituted on somewhat the following lines : 


Objects. (1) To co-ordinate the activities of the various depart- 
ments of Government engaged in the district in regard to its 
economic improvement and general welfare : 

(2) To encourage and assist all private enterprises in the 
district which have a similar objective. 

Organization. I. The Board shall be comprised of 
1) The Deputy Director of Agriculture. 


The District Labour Officer. 
The District Health Officer. 
The District Educational Officer. 
President of the District Bank. 


(ft) President of the District Federation. 
(7} Deputy Eegistrar of Co-operative Societies, 
f 8; President of the District Board. 
(9) Co-opted members, say three. 

II. The Board shall elect its own President. 

III. The Deputy Kegistrar shall be its Secretary, ex officio. He 
will report to the Kegistrar periodically on the working of the 

Duties. (1) The Board shall meet once a quarter at least. 

(2) At one of these meetings each department will present its 
own ideas as to the work for the coming year or season, and the 
discussion at the meeting should be aimed to make the work of each 
department co-ordinated with the needs and possibilities of the 

(3) The other meetings will afford the opportunity for clearing 
up any problems of overlapping, and for adjusting any difficulties 
which may have arisen in the course of the year, as for instance by 
failure or delay of the monsoon, by floods, by unforeseen rise of the 
price of staple crops, etc. 

(4) The Board will not employ its own officers. Nor is it an 
executive body. Its purpose is co-ordination through conference, 
and its powers are purely advisory. 

(5) Where any private efforts are being made in the district 
toward < development ' such as c Eural Eeconstruction,' the Board 
should take such into full consideration as calling for special 
assistance in the course of the regular work of the department. 

Finance. The financial needs of the work of the Board should 
be very meagre, But whatever it is, it should be provided for in 
the regular budget of the Deputy Eegistrar. 

23r<7 January 1928. K. T. PAUL. 


General Questionnaire. 

1. Do you consider that the co-operative movement in this Presidency is 
advancing on sound lines, and is of increasing benefit to members of societies ? 

2. To what extent has it resulted in reduction of indebtedness, rate of 
interest charged by money-lenders, and civil litigation ? In what other ways 
have material benefits resulted to the members of societies ? 

3. Have professional money -leaders been actively hostile to the move- 
ment and with what effect ? Is the hostility, if any, increasing or the reverse ? 

4. Do you consider that the relations which exist between the Co-opera- 
tive Department and other Departments of Government, such as the Depart- 
ments of Kevenue, Agriculture, Veterinary, etc., are satisfactory ? If not, 
can you suggest any means whereby better co-operation with these depart- 
ments will be ensured ? 


5. Do you consider that the co-operative movement is in a sound finan- 
cial condition? 

6. The Begistrar's last report shows that the central banks have more 
money on deposit than they can vise. Can you suggest any means of 
remedying this state of affairs ? 

7. Are you of opinion that the policy of using fixed deposits for financ- 
ing long-term loans is unsound, or if not, to what lengths do you think 
such a policy may be safely pursued ? 

8. Do delays occur in dealing with Una applications either in the pri- 
mary society, the union or the district bank ? To what are they due ? How 
can they be avoided ? Do they deter members from applying for short or 
long-term loans ? 

9. Are there serious delays or difficulties in obtaining and executing 
decrees against defaulters in respect of loans secured (a) by specific mortgage, 
(6) otherwise ? If so, what remedy do you suggest ? 

10. Has the principle of unlimited liability been applied so that the 
whole liability on liquidation is laid unfairly upon a small minority of the 
members P 

11. To what extent can the system of accounts be safely simplified ? Is 
it desirable to eliminate pies from all accounts and transactions ? 

12. To what do you attribute the growth of overdues ? What remedy do 
you suggest ? 

13. On whose recommendation should loans be granted by the financing 
banks ? 


14. Audit is a statutory function of the Registrar. In what cases and to 
what extent should societies contribute towards the cost of audit P 


l5 v Do you consider the present audit arrangements adequate ? 

16. Do the present arrangements for audit allow shareholders, depositors, 
and financing and supervising bodies to obtain all the information they are 
entitled to regarding the position of the societies in which they are 
interested ? 


17. Is the supervision of the- work of co-operative societies at present 
adequate ? 

18. Can the supervision of societies be handed over completely to non- 
official agencies, either now or at some future date ? 

19. Do the supervising unions function efficiently ? If not, to what is the 
failure due, and to what extent should this supervision be supplemented, 
strengthened, or replaced by a further agency ? 

20. Should central banks inspect and supervise societies financed by them, 
or should supervision remain with the unions combined in a federation ? 

21. Is the present conception of the constitution and functions of a 
federation correct? (The conception is that the federation consists of the 
representatives of all unions, the financing banks, and of co-opted members, 
to control and supplement, through a paid staff, the work of unions and to 
organize education and propaganda.) 

22. Are the funds for supervision adequate P If not, how should they be 
supplemented ? 

23. What is your opinion of the present organization of supervising 
unions ? Does it result in tho concealment of irregularities ? 


24. Is the staff employed by the department and by co-operative insti- 
tutions adequately trained in co-operative principles and the practical 
working of societies ? 

25. Does the pay now offered attract men of the right type with suffi- 
ciently high educational qualifications ? 

26. What, if any, further provision is necessary for instructing and 
training co-operative workers and members of co-operafcive societies ? 


27. By what agency should new credit and non-credit societies be 
organized P What qualifications should the organizers have, and what preli- 
minary instructions should be given to the panchayatdars and members of a 
prospective society P 

28. Has the organization of new societies fallen off a a the official staff 
has gradually confined itself more to audit ? If so, to what extent ? 

29. Do you consider that the present arrangements for propaganda are 
suitable P If not, what changes and development do you suggest in them P 

Madras Central Urban Bank and Central Banks. 

30. Have you any criticisms to offer on the present constitution and 
management of central banks ? 


81. What is your opinion as to the elimination of individual chare- 
holders P 

32. What area or how many societies can a central bank most effec- 
tively serve ? On what consideration do you base your opinion ? 

33. Is it desirable that banks shonld have paid secretaries with no seat 
on the directorate P 

34. Shrfuld the borrowings of primary societies be limited, as at present, 
by the amount of share capital held by them in central banks ? If not, 
what changes do you propose and for what reasons ? 

35. To what extent is uniformity deaintble and possible in the rates at 
which various central banks accept deposits ? 

36. The Maclagan Committee was of opinion that the resorve funds of 
societies should not be deposited in central banks, but in Madras this recom- 
mendation was not accepted, and reserve funds of societies are held by the 
central banks. Do you consider the Madras system satisfactory P 

y7. Is the practice of granting loans for ten years by central banks 
financially sound P 

38. Should central banks borrow for longer term loans by issue of 
debentures, or should this business be separately provided for by land mort- 
gage banks ? 

39. What proportion of a central bank's funds should be lent for long- 
term loans and for what periods ? 

40. Is it possible or desirable for the central banks further to reduce 
their lending rate ? 

41. Is the present standard for fluid resources adequate ? 

Land Mortgage Banks. 

42. Have you any suggestions or criticisms to offer regarding the 
system of land mortgage banks recently introduced in this Presidency? 

43. What is the maximum area over which a bank can effectively 
operate P 

44. How should the value of mortgages offered as security bo assessed ? 
Should a paid staff be employed ? If so, who should pay it ? 

45. Is it desirable to centralize the issue of debentures for all land 
mortgage banks P What form should the central organization take ? 

46. Can you suggest auy improvement on the schema which would 
tend to inspire confidence in the general public, and induce them to buy 
debentures more freely ? 

47. Should the organization and supervision of land mortgage banks be 
entrusted to a special staff under the Registrar ? 

Primary Ctedit Societies. 

48. Do members understand the principles of co-operation and realize 
their responsibilities as members of an unlimited liability society ? 

49. Do panohayatdars generally understand and discharge their respoij- 
a in the management of their societies ? 

60* Do these societies secure to their members adequate provision for 
short-term loans P Do members still go to the looal so wear for small short- 
term loans P If so, what remedy do you suggest for this p 

51. Do these societies make adequate provision for long-term loans P 

52. Are loans properly granted in regard to amount and term, with doe 
regard to the purpose of the loan, the repaying capacity of the member, and 
the most convenient season for repayments P 

53. Is the bona fides of the purpose for which loans are demanded 
verified P Are loans always granted for useful purposes P 

54. To what extent, if any, arc benami loans given P 

55. To what extent does the panohayat satisfy itself that the loan has 
been properly applied P 

56. On what basis should the maximum borrowing power of the society 
and of members be fixed P By whom should it be fixed P 

57. Is it desirable to pay honoraria to the Secretary or panohayatdars P 
If so, on what basis should it be paid P 

Non-credit Societies. 

68. Of what type of non-credit societies have you had experience P 

59. What steps do you recommend to facilitate the development of 
non-oredit societies of various types P Please state to what type of society 
you refer P 

60. Is it desirable to have a separate branch of the official staff to deal 
with non-credit societies P 

61. Arc you acquainted with the working of any co-operative stores in 
the Presidency P If so, have you any criticisms to offer or suggestions to 
make regarding the work of such societies P 

62. For what reasons were the purchase and sale societies for weavers 
unsuccessful, and what measures coutd be adopted to improve them ? 

63 To what extent, and in what direction, should credit societies under- 
take non-credit activities P Are any steps necessary to develop these 
activities P 

64. How far is it possible and desirable to develop co-operative distri- 
bution, production, and sale societies p 



1- What is the number of societies affiliated to your bank P 

2. How many of them are indebted to you P And, if so, to what 
amounts ? 

3. How many societies out of the total number of affiliated societies 
borrowed from your bank last year ? 

8. (a) How many of the societies affiliated to your bank have not 
-borrowed from you at all, subsequent to obtaining the initial loan ? 

8. (6) How many of your affiliated societies have not borrowed f fdr 
over two and three years respectively ? 

4. How many of yuur societies do you think aie good, that is to flay, 
are capable of managing their own affairs, without any outside supervision 
or instruction ? 

5. On what information do you base this opinion ? 

6. What reports do you think your bank is entitled to get, and 
whom ? 

6. (to) What reports do you actually get about your societies, dnd ' 
whom ? 

7. What use do you make of these reports ? 

8. Do you obtain copies of audit notes for your societies from the 
Assistant Registrar ? Do you obtain them promptly, or with delay ? 

8. (a) Do you get copies of interim audit reports ? 

9. Have you any permanent record wherein the contents of these 
reports are tabulated for ready reference ? 

10. How far are these reports reliable ? 

11. Do your by-laws give you power of inspection ? 

12. Have you used it in any case ? With what results ? 

13. Did you approve of the Bankers* Conference resolutions, No. 1, 
dated May 8th 1926, and No. VI, dated October 2nd 1926 ( Rectification), 
and to what extent did you attempt to carry them out ? 

14. What are the principles on which you deal with loan applications ? 
How many of your societies have revised their property statements during 
1926-27? How many societies have sent copies of them to you? What 
steps do you think are necessary to see that every society carries out an 

'annual revision of the property statement P 

14. (a) What records do yon generally consult in dealing with loan 
applications P 

15. Who recommends loans P 

16. Are there oases whore tho recommendations were not accepted? 
Can you state the reasons ? 



17. Are you satisfied that the recommendations have not gone wrong? 
Have you verified loan applications ? 

18. How do you discriminate between loan applications P 

19. Have you any system whereby the working and affairs cf societies 
are continuously watched P * 

20. What are the reasons for your increasing overdues P 

21. How do you distinguish between legitimate overdues and wilful 
defaults P 

21. (a) What steps do you take to see that the necessary extensions 
are granted to members of primary societies ? 

22. Have you any debt-collecting agency of your own? Have you, or 
have you not, felt any necessity for such an agency P 

23. What is the amount of overdues to your bank from your societies ? 
What is. the amount of overducs. of the members to the primary societies 

.affiliated to you ? Please explain the difference between the two amounts. 

24. What proportion of the overdues to your bank are overdue for more 
than two years? What steps have you taken in the matter? 

. . 25. Have you asked for any enquiry under section 35 or 36 of the 
Co-operative Societies Act ? With what result ? 

26. Have you any societies under liquidation ? How are collections 
in such oases P 

27. How much of the overdues of members are secured by mortgage ? 
How much by sureties, and what is the proportion of each to the demand ? 

28. Are the terms of money-lenders in your district harsher for short 
term than long-term loans ? 

29. Do you consider it advisable to divide the short-term business of 
your bank from the long-term business, both as regards deposits and loans ? 

30. It has been stated that such a system would 

(i) be financially safer, 

(ii) educate the primary societies in business methods, and 
(iii) assist them economically in placing more short-term loans at 
their disposal. By a short-term loan is meant a seasonable advance for crop 
purposes. Do you agree P 

31. Do you think that a lower rate for short-term deposits and a higher 
rate for long-term deposits would encourage the latter ? 




Classification of societies. While it does not suggest that any attempt 
should be made to impose the system of classification of societies on Provinces 
or States which have not adopted and do not feel the need for such a syatem, 
the Conference is of opinion that where the system has been, or is to be, 
introduced some method should be followed whereby uniformity of classi- 
fication will be secured. To attain this object the following tests should be 
spplied : 

Class A. Should receive no help from official or non-official staff, other 
than the annual audit. Such a society may be inspected, exhorted and 
encouraged ;new proposals fortbe development of its activities may be made, 
but an inspection should not be necessary in order to remedy any defects. 
It must in addition contain all the distinguishing marks of a B class 

Class B. Must maintain its own accounts through a local secretary > 
not a circle or itinerating secretary. It must prepare its own monthly or 
crop demand, make its own recoveries from debtors, apply when necessary 
for arbitration, conduct its own execution proceedings in court, and be 
generally in a sound and healthy condition. A society classed as B may, 
however, contain a certain number of defaulters, its accounts need not be 
faultless, and its co-operative spirit and education may be in some respects 
short of perfection. 

Class D. A bad society which will be cancelled and brought under 
liquidation, if it does not raise itself to class C within two years. No 
society should be classed as D so long as it is considered fit to receive a new 
loan on any terms whatever from its financing institution. 

Class C. All other societies, 




H. M. Hood, Esq., I.C.S., Begistrar of Co-operative Societies. 
B. D Anstead, Esq., M.A., C.I.E., Director of Agriculture. 

D. A. D. Aitohison, Esq., M.R.C.V.S., M.P.S., Veterinary Adviser to 


M.B.By. V. C. Bangaswami Ayyangar Avargal, B.A., Secretary, Madras 
Central Urban Bank. 

B. A. Sivananda Mudaliyar Avargal, President, South Arcot 

District Co-operative Federation. 
li. Srinivasa Ajyangar Avargal, B.A., B.L., M.L.C. 
Diwan Bahadur B. Bamachandra Rao Avargal, c.s.i., Ex- 

Begistrar of Co-operative Societies. 
S, Krishnaswami Ayyangar Avarga], Secretary, Christian 

Co-operative Central .Hank. 
M. K. Pandekar, Esq., B.A., Principal, Government Institute of 

Sir Lallubhai Samaldas, jK7.,cM.E., President of the Bombay Co-operative 

M.B.By. K. G. Sivaswami Avargal, B.A., Member, Servants of India 

B. Krishnaswami Ayyangar Avargal, B.A., B.L., President, 

South Arcot Central Bank. 
A, Sivarama Menon Avargal, Bepresentative of the Triplicane 

Co-operative Stores, 
,, Bao Bahadur A. Vedachala Ayyar Avargal, retired Registrar of 

Co-operative Societies. 

A. Parasurama Bao Avargal, B.A., B.L., M.L.C., Oaddapah. 
Bao Sahib V. Venkata Achariyar Avargal, President, Conjee- 
veram Central Bank. 

E. G. Grieve, Esq., M.A., Director of Public Instruction. 

M.B.By. M. Bamakrishna Bao Avargal, Director, Nellore Central Bank, 
Bao Bahadur M. K. Venkala Achariyar Avargal, retired Joint 

Begistrar of C-operative Societies. 
Khan Bahadur Muhammad Bazl-ul-lah Sahib Bahadur, O.I.E., O.B.E., 

Director of Industries. 

S. H. Slater, Esq., C.M.Q., C.IK,, I.C.S., Commissioner of Labour. 
M.BBy. O. Viswanatha Bao Avargal, B.A,, B.L., Secretary, Nellore 

Central Bank. 
K. V. Baghava Aoharya Avargal, B.A.^ B.L., President, Nellore 

Central Bank. 
5 , Bao Sahib T. Srinivasa Bao Avargal, Secretary, Provincial 

Co-operative Union. 
V. Venkatasubbiah Avargal, B.A., Joint Secretary, Provinoial 

Co-operative Union. 
J. Gray, Esq., O.B.B., I.C.8., Ex-Begistrar of Co-operative Societies. 



. B. Venkoba Bao Avargal, Ex-Secretary, Bellary District 

N. Narayana Bao Avargal, Director, Bellary Co-operative 

A. D. Thandu. Mudaliyar Avargal, Member of the Executive 

Committee, Hospet Central Bank. 
B. Nagan Gowda Avargal, M.L.C. 

C. Balaji Bao Avargal, President, Bellary Co-oparative Union. 
V. Krishnama Chetti Avargal, B.A., B.L., High Uourt Vakil. 

F. Bayers, Esq,, District Superintendent of Police. 

M.B.By. K. Krishnacharya Avargal, Secretary, Hospet Central Bank. 

Q. Thimmappa Avargal. 

Bao Sahib J. Venkatesain Choudari Garu, B.A., Deputy 
Begistrar of Co-operative Societies. 


M.B.By. J. Rrishnamurlhi Bao Avargal, Secretary, Cuddapah Central 

,, K. Ghmdu Bao Avargal, Director, Cuddapah Central Bank. 

V. Pichayya Pantulu, President, Cuddapah Central Bank 
Bov. H. W. Whyte, President, Jammalamadugu Co-operative Union. 
M.B.By. Thambuswami Piliai Avargal, President, Markapur Co-ope- 
rative Union. 

,, G. Bameswara Kao Avargal, Director, Anantapur Central 

,, L. Gangadhara Sastri, Secretary, Anantapur District Fede- 

H. Shiva Bao Avargal, Secretary, Anantapur Central Bank. 

M. Narayana Bao Avargal, President, Anantapur Central 

0. Banganatha Ayyangar Avargal, Secretary, Gooty Town 

Bhima Bao Pantulu. 

H. Narayana Rao Avargal, B.A,, B.L., Director, Anantapur 
Central Bank. 


Syed Tajudin Sahib Bahadur, M.L.C. 

M.B.By. O. A. Narayanaswami Ayyar Avargal, B.A., H.L., Secretary, 

Tanjore Co-operative Union. 
K. 8. Srinivasa Ayyar Avargal, President, Tanjore Central 

V. B. Srinivasan Avargal, B.A., Secretary, Kumbakonam 

Central Bank. 
}> Bao Bahadnr N. Krishnaswami Ayyangar Avargal, B.A., B.L., 

President, Kumbakonam Central Bank. 
,, Kao Sahib K. V. Tbiruvenkata Mudaliyar Avargal, Secretary, 

Tiruvalur Co-operative Union. 
N. S. Kulandaiswami Piliai Avargal, Assistant Director of 

., Bao Sahib A. Seturama Ayyar Avargal, Secretary, Tanjore 

District Co-operative Manure Society. 



M.RRy. G. Srinivasa Haghavaohariyar Avargal, retired Assistant 
Registrar of Co-operative Societies, and Secretary, Madura- 
Bamnad District Federation. 

Rao Sahib N. Ramaswami Ayyar Avargal, President, Madura- 
Ramnad Central Bank. 

P. A. Snbrahmanya Ayyar Avargal, Secretary, Tiruppattur Co- 
operative Union. 

R. Ananda Rao Avargal, Secretary, Tiruthangal Co-operative 

S. P. Perumal Pillai Avargal, B.A., Deputy Registrar of Co- 
operative Societies, 

N. P. Krishnaswami Ayyangar Avargal, President, Nanguneri 
Co-operative Union. 

E. S. Sunda Avargal, B,A., B.L., President, Madura City Co- 
operative Union. 

,, A. Srinivaea Achariyar Avargal, Secretary, Srivilliputtur 
Central Bank. 


M.R.Ry. Diwan Bahadur Sir T. Desifea Achariyar Avargal, Kt^ B.A., 

B.I.'., President, Trichinopoly Central bank. 
T. Nataraja Pillai Avargal, Lalgudi. 
Ij. N. Paramasivam Pillai Avargal, President, Trichinopoly 

District Federation. 
S. Annadurai Ayyar Avargal, Secretary, Kulitalai Co-operative 

,, Rao Sahih 0. N, Ramaswami Ayyar Avargal, M.A., Deputy 

Registrar of Co-operative Societies. 


M.R.Ry. C. V. Venkataramana Ayyangar Avargal, B.A., B.L., M.L.C., 
Director, Coimbatore Central Bank. 

T. S. Venkataramana Ayyar Avargal, Director, Coimbatore 
Central Bank. 

Rao Bahadur T. S. Balakrishna Ayyar Avargal, President, 
Coimbatore Central Bank. 

, f K. S. Ramaswami Gounder Avargal, Tiruppur. 

,, Eao Sahib K. M. Chinna Rangayya Gounder Avargal, Presi- 
dent, Kambliampatti Co-operative Union. 

N* Subrahmanyam Avargal, Secretary, Coimbatore Central 

J. N. Jayakaian Avargal, T.M.C.A. rural centre, Ramanatha- 


M.R.By. Rao Sahib M. V. Krishna Menon Avargal, Secretary, Malabai 

District Bank. 

,, V. K. Menon Avargal. 

,, R. Snryanarayana Avargal, Member, Servants of India Society, 
M E. Raman Menon Avargal, B.A., Headmaster, Government 
Fisheries Training Institute. 


Calicut cout. 

M.B.By. Bao Bahadur T. M. Appu Nedtingadi Avargal, Director of 

Nedungadi Bank. 
,, Bao Sahib P. V. Q-opalan Avargal, Honorary District Labour 

Karunakara Menon Avargal, Assistant Director of Fisheries. 

t Mangalore. 

M.B.By. M. Shiva Bao Avargal, Ex- Vice- President, South Kanara 

Central Bank. 

M. Ananta Bao Avargal, B.A., B.L. 
M. Giriappa Avargal, B.A., Deputy Begiatrar of Co-operative 

,, N. Mangesha Bao Avargal, President, Mangalore Co-operative 

Printing Works. 
B. W. Bhandarkar Avargal, B.A., B.L., Secretary, South 

Kanara District Council of Supervision. 
0. Venugopal Bao Avargal, Secretary, South Kanara Central 



M.K.By. M. M. Masilamaui Avargal, Vice-President, Salem Central 

GK Paravasudevayya Avargal, President, Krishnagiri Urban 

S. Bhuvaraha Murthi Aohar Avargal, B.A,, B.L,, President, 

Atur Co-operative Union. 

fl K. Sundararaja Ayyangar Avargal, Secretary, Salem District 


M.B.By, Bao Sahib M. S. Seshaohalam Ayyar Avargal, President, 
Tiruvannamalai Co-operative Union. 

S. Srinivasa Ayyar Avargal, B.A., L.T., Secretary, Vellore 
Co-operative Building Society. 

C. Venkataramana Ayyar Avargal, President, Chittoor Central 

K. Baman Nayar Avargal, B. A., Deputy Registrar of Co-opera- 
tive Societies. 

Bao Sahib N. Krishnama Achariyar Avargal, B.A., B.L., Ex- 
President, North Arcot Central Bank. 
B. D. Paul, Esq., M.A., District Labour Officer. 


M.B.By. P. Venkataramanayya Avargal, Secretary, Qodavari District 
Central Bank. 

B. Venkata Rao Avargal, B.A., Secretary, Konasecma Central 

G. Lakshrrdnarayana Avargal, Director, Peddapuram Co-opera- 
tive Union, 

,, N. Satyanarayana Avargal, Secretary, Godavari District 


ILB.By. V. Venhataratnam Ohoudari Garu, M.L.O, Dhredttfr, Rama- 

chandrapuram Central Bank. 

K. Chelapathi Rao Avargal, Secretary , Peddaptiram Go-opera- 
tive Union. 


M.R.Ry. V. 8. Jagannatha Rao Avargal, Director, Vizagapatam, Urban 

C. Dharma Rao Avargal, M.A., L.T., Secretary, Ganjam District 

Central Banking Union. 
Sriman Narasinga Pad hi Mahasayo, Secretary, Ruseellkonda Co-opera- 

tive Union. 

Tanab S, A. Allay Sahib Bahadur, President, Rambha Union. 
Sriman Balakrishna Ratho Mahasayo, B.A., B.L., Secretary, Aska 

Central Bank. 
M.R.Ry C. Bhaskara Rao Nayudu Avaigal, B.A., Deputy Registrar of 

Co-operative Societies. 


M.R.Ry. C. Subba Rao Avargal, Secretary, Vizagapatam District 

Central Bank, 

M. Venkatarangiah Avargal, M,A M L.T., President, Vizaga- 
patam District Central Bank. 


M.R.Ry. Rao Bahadur K. Nageswara Rao Avargal, B.A,, retired Deputy 

C. Rajagopala Aoharya Avargal, B.A., B.L., President, Vizia- 

vada Central Bank. 
,, D. Vishnu Rao Avargal, B,A M B.L., Secretary, Viziavada 

Central Bank. 
N. Rangauatha Acharya Avargal, B.A., B.L., Deputy Registrar 

of Co-operative Societies. 
M G. Venkataratnam Avargal, President, Qudlavalleru Co-opera- 

tive Union. 
I. V L. Narasimha Acharya Avargal, Director, Kistna Co- 

operative Bank 
G. Ramachandra Rao Avargal, Secretary, Aiidhra Sahakara 

Rev. B. Raymond Haaf, B.A., President, Tenali Depressed Cksses 

Co-operative Union. 
M.R.Ry. L. Rarnakrishna Rao Avargal, B.A., B.L., President, Gnntur 

District Central Bank 
8. Venkateswara Rao Avargal, Director, Vizi&vadfc 'Central